Potential Relief for COVID-Period Tax Penalties and Interest

Dhruv Panchal

CPA | Tax Manager

A recent federal court decision, Kwong v. United States, may create an opportunity for certain taxpayers to recover penalties and interest assessed during the COVID‑19 relief period. The law in this area continues to develop. The IRS is appealing the decision, so nothing has been settled yet. However, this ruling highlights potential refund and abatement opportunities related to IRS deadlines that were postponed under pandemic‑era disaster relief provisions.  Affected taxpayers should review and act immediately to file a protective claim and secure any refunds if the IRS appeals fail.

What Happened?

During COVID‑19, the IRS gave everyone extra time to file federal taxes and make payments. The Kwong case ruled that the IRS may not have applied those extended deadlines correctly when it came to certain penalties and interest assessments. If that’s correct, some of those changes shouldn’t have been assessed in the first place. As a result, some taxpayers who paid penalties or interest during the pandemic period or continue to have outstanding assessed amounts may be eligible to claim relief.

Who Might This Apply To?

If you (or your business) were charged any of the following between  2020 and 2023:

• Late filing penalties
• Late payment penalties
• Estimated tax penalties and related interest

These penalties apply not only to individuals, but would also apply to businesses, trusts and estates. Please note that the failure-to-file penalty for partnerships and S-Corporations can be significant as the IRS charges these penalties per month per partner with a maximum of 12 months. During the period above, the amount ranged from $205 to $220 per month, per partner. That’s not a trivial amount.

What’s the Catch?

A few things to keep in mind:

• Action may be time‑sensitive. July 10, 2026, is expected to be a key date for preserving refund claims in many cases.
• Refunds are not automatic. Eligible taxpayers must take affirmative steps to request relief.
• Early action is critical. In some situations, deadlines may apply sooner depending on specific facts.

How We Can Help

We are actively monitoring developments related to this case and can assist with:

• Evaluating whether you may be eligible
• Filing protective claims to preserve your rights
• Preparing refund claims or requests for penalty abatement

Next Steps

If any of this sounds like it may apply to you, we encourage you to contact the trusted advisors at CK to discuss your specific situation. You can call us at (630) 953-4900 or fill out this form.