Three Key Takeaways
- A federal court has ruled that the COVID disaster suspended IRS deadlines from January 20, 2020 through July 10, 2023. Any late-filing penalty, late-payment penalty, estimated-tax penalty, or underpayment interest the IRS calculated against a “due date” inside that 42-month window may have been assessed against a deadline that legally did not exist yet.
- The IRS is not refunding anyone automatically. The agency disagrees with the ruling and is expected to appeal. To preserve your right to recover those dollars, you have to file a protective refund claim on Form 843 — one per tax year — before the statute of limitations runs.
- The practical deadline for most pandemic-era claims is July 10, 2026. Miss it, and even if the courts ultimately side with the taxpayer, your claim is gone. The cost of filing a protective claim is one form per year; the cost of not filing, if the ruling holds up, is leaving the money permanently with Treasury.
If you paid an IRS late-filing penalty, late-payment penalty, estimated-tax penalty, or interest on a balance due any time between January 2020 and July 2023, there is now a credible legal argument that the IRS never should have charged you. A federal court decision from late 2025, Kwong v. United States, says the COVID-19 disaster declaration automatically pushed federal tax deadlines forward by more than three years — and any penalty or interest the IRS calculated using a due date inside that window may be refundable.
This affects an enormous number of taxpayers in Chicago, the Cook County suburbs, and across Illinois. The COVID disaster declaration was nationwide, so Illinois individuals, sole proprietors, S-corps, partnerships, and businesses of every size all sit inside the same legal window. Our Chicago CPA firm has been fielding questions on this daily, and what follows is the plain-English version of what the ruling actually does and what local taxpayers should be doing about it.
The catch? You have to ask for the money back. The IRS is not mailing checks. And the deadline to lock in your right to claim it is July 10, 2026.
Here is what the ruling actually says, who it applies to, and the practical steps to preserve a claim before the window closes.
The Short Version (Direct Answer)
In November 2025, the U.S. Court of Federal Claims ruled in Kwong v. United States that the version of Internal Revenue Code § 7508A(d) in effect during the COVID-19 pandemic automatically postponed federal tax deadlines for the entire disaster period plus a 60-day tail — from January 20, 2020 through July 10, 2023. Under that reading, any failure-to-file penalty, failure-to-pay penalty, estimated-tax penalty, or underpayment interest the IRS computed using a “due date” that fell inside that 42-month stretch was assessed against a deadline that, legally, did not exist yet. The National Taxpayer Advocate has publicly recommended that affected taxpayers file a protective refund claim on Form 843 before July 10, 2026 to preserve their right to recover those amounts while the IRS appeals.
That is the headline. Now the details.
What the Court Actually Decided in Kwong
The case itself was not flashy. Terry Kwong, a California taxpayer, had refund claims for penalties going back to the 2007, 2010, and 2011 tax years. The IRS denied the claims in 2020. Under the standard rule in IRC § 6532(a), a taxpayer has only two years from a notice of disallowance to sue. Kwong filed in February 2023 — well past that two-year window on its face.
The government moved to dismiss. Kwong argued that § 7508A(d), as written before Congress amended it in 2021, mandated that the entire COVID disaster period be ignored when counting deadlines. The court agreed, and the reasoning is what matters for everyone else:
- The COVID-19 federal disaster, as defined by FEMA, ran from January 20, 2020 (the earliest incident date) through May 11, 2023 (when the federal public health emergency ended).
- Section 7508A(d) requires an additional 60 days to be tacked onto the end of any disaster period.
- That math produces a mandatory postponement period running through July 10, 2023.
- The statute is self-executing — it does not depend on an IRS press release or notice.
- A Treasury regulation that tried to cap the postponement at one year was rejected. The court applied the Supreme Court’s 2024 Loper Bright decision, which ended automatic judicial deference to agency regulations, and held the regulation simply misread the statute.
Translation: every federal tax deadline that fell between January 20, 2020 and July 10, 2023 was, as a matter of law, pushed to July 11, 2023. If the IRS charged a penalty or interest based on an earlier “due date,” it used the wrong date.
Why This Suddenly Matters to Millions of Taxpayers
When Kwong was decided in November 2025, almost no one noticed. It looked like a procedural ruling about one taxpayer’s old penalty claims. Over the spring of 2026, tax practitioners began connecting the dots, and the National Taxpayer Advocate published a public analysis estimating that tens of millions of taxpayers could be eligible for refunds or abatements.
Here is the practical implication: if a return was due, a payment was made, or an installment plan was running at any point between early 2020 and mid-2023, and the IRS calculated penalties or interest against you, the underlying due date the IRS used is now legally suspect. That includes:
- Failure-to-file penalties under IRC § 6651
- Failure-to-pay penalties under IRC § 6651
- Estimated tax penalties under IRC §§ 6654 and 6655
- Underpayment interest under IRC § 6601
- Certain information return penalties with deadlines inside the window
The bigger the balance you carried and the longer it sat, the larger the potential refund. Some corporate cases already in litigation involve hundreds of millions of dollars. For an individual, it might be a few hundred. For a small business owner who fell behind during the worst of the pandemic, it can easily be five figures.
Who Is Most Likely a Candidate
You should take a closer look at this if any of the following describe you:
- You filed a 2019, 2020, 2021, or 2022 tax return late and paid a late-filing penalty.
- You owed a balance on any return in that window and paid a failure-to-pay penalty.
- You were on an installment agreement during 2020–2023 and paid interest on the unpaid balance.
- You make quarterly estimated payments (self-employed, freelance, K-1 income, fluctuating income) and got hit with an underpayment penalty for 2019, 2020, 2021, or 2022.
- You extended a return between 2020 and 2023 and ended up owing.
- Your business paid payroll-related penalties or corporate underpayment interest during the period.
This is not limited to individuals. It applies to S-corps, C-corps, partnerships, estates, trusts, and nonprofits with obligations that touched the disaster window.
A Chicago and Illinois Perspective
In the work we do across Chicago and Cook County, several local patterns stand out. The pandemic hit small businesses in the Chicago area particularly hard — restaurants, retail along corridors like Michigan Avenue and the neighborhoods, professional services firms in the Loop, and the dense network of self-employed consultants across the metro all carried unusual balances during 2020 through 2022. Many of our clients filed extensions, paid late, or rolled into installment agreements during that stretch, and the resulting IRS penalty and interest postings land squarely inside the Kwong window.
The same applies to real estate operators across Cook, DuPage, and Lake counties who saw rental income disrupted, to medical and dental practices in Illinois that deferred quarterly estimates, and to family-owned businesses statewide that prioritized payroll over tax deposits in 2020 and 2021. If you are in any of these buckets, this ruling is worth taking seriously.
The Critical Deadline: July 10, 2026
The general statute for refund claims, IRC § 6511, gives a taxpayer the later of three years from filing the return or two years from when the tax was paid. Under the Kwong reasoning, the period from January 20, 2020 through July 10, 2023 must be disregarded when running those clocks. For a meaningful slice of pandemic-era payments, that math lands the practical filing deadline on or around July 10, 2026.
This is why the entire conversation has shifted to protective claims. A protective refund claim is a formal filing that tells the IRS, “I believe I am owed a refund, the legal issue is currently being litigated, please hold my claim in suspense until the courts resolve it.” It does not require final dollar amounts. It does not require winning anything today. It only requires getting on the record before the limitation period runs out.
If you miss July 10, 2026 without filing, and Kwong is ultimately upheld on appeal in 2027 or 2028, you will have no claim left to perfect. The money stays with Treasury.
How a Protective Claim Actually Works
The mechanics, for those who want to handle it themselves or want to know what their tax pro is doing:
Step 1: Pull Your IRS Account Transcripts
Pull an Account Transcript for each tax year potentially in play — 2019, 2020, 2021, and 2022 at minimum. You can request these through your IRS Online Account at IRS.gov or by phone. The Account Transcript is the one with the three-digit transaction codes. The codes that matter here:
- TC 166 — Late-filing penalty
- TC 276 — Late-payment penalty
- TC 196 — Interest assessed
- TC 176 — Estimated tax underpayment penalty
Add up the dollars associated with those codes for each year. That is the universe of potential refund.
Step 2: Identify the “Due Date” the IRS Used
For each assessed penalty, identify the due date the IRS measured against. If that date — original or extended — falls between January 20, 2020 and July 10, 2023, the assessment is squarely within the Kwong argument. For 2019 returns (originally due April 15, 2020) and 2022 returns (originally due April 18, 2023), the entire due date is inside the window. For 2023 returns, only certain partial periods may apply, and the math is messier.
Step 3: Fill Out Form 843
Form 843, Claim for Refund and Request for Abatement, is the vehicle. One form per tax year. Key points:
- Write “Protective Refund Claim Pursuant to Kwong Case” across the top of page one. (This is the exact caption the National Taxpayer Advocate recommends.)
- On the explanation portion, reference IRC § 7508A(d) and the Kwong decision, and state that the claim is being filed protectively while the legal issue is pending.
- Identify the specific penalty and interest amounts, the tax year, and the return type.
- Cite the relevant Code sections on Line 6 (typically §§ 6651, 6654, 6601, and 7508A).
Step 4: Mail It Certified, Return Receipt
Form 843 cannot be e-filed. Send it via USPS Certified Mail with Return Receipt to the IRS Service Center listed on your most recent notice — or, if you do not have a recent notice, to the service center where you filed your original return. Keep the certified mail receipt and the green return card. Under IRC § 7502, the postmark date is your filing date.
Step 5: Expect a Denial — That’s the Point
The IRS has not acquiesced to Kwong and is expected to deny protective claims on first review. That is fine. The denial does not end your claim. It starts a new two-year window under § 6532(a) during which you can file suit or wait for the appellate process to play out. The point of the protective claim is to keep your seat at the table while the higher courts sort out the law.
Important Caveats — This Is Not a Slam Dunk
Honesty matters here. A few things to keep in mind:
1. Kwong is one trial court decision. The U.S. Court of Federal Claims is not binding nationwide. The IRS is expected to appeal to the Federal Circuit, and the Federal Circuit could affirm, narrow, or reverse the holding. The legal theory is strong on the statute’s plain text, but it is not final.
2. The IRS’s posture is inconsistent. In at least one recent docketed case, IRS counsel quietly agreed to a settlement that carved out interest for part of the postponement period — without citing § 7508A. In another case, government counsel refused to do the same. That tells you the agency knows the law is unsettled.
3. The big-dollar cases are already moving. Meta is litigating a multi-billion-dollar deficiency partly on this theory. Western Digital is suing for more than $20 million in COVID-era underpayment interest. The outcome of those cases will shape what is available to smaller filers.
4. Estimated-tax penalties under § 6654 are harder. That penalty has a narrow set of statutory exceptions and no general reasonable-cause defense. Kwong did not win on his § 6654 claim. If your penalty is under § 6654, the theory still works on the timing, but expect more resistance.
5. Procedure is everything. Filing the wrong form, in the wrong year, to the wrong service center, can blow the claim entirely. If the numbers are meaningful — say, more than a few hundred dollars — this is a place where professional help pays for itself.
A Quick FAQ
Will the IRS automatically refund me? No. The IRS has not acquiesced to Kwong and will not issue refunds on its own. You have to file a claim.
What if I do not have a recent IRS notice? Mail Form 843 to the IRS Service Center where you filed your original return. The IRS website lists service center addresses by state.
Do I need to know the exact refund amount? For a protective claim, no. The whole point is to preserve the claim while the law develops. You can perfect the dollar figures later, once the courts finalize the rule.
Does this apply to Illinois state tax penalties? No. Kwong interprets a federal statute, so it does not automatically affect Illinois Department of Revenue penalties. Illinois did issue its own COVID-era relief, but the rules and limitation periods are different and need to be evaluated separately. We can review state-side exposure at the same time we look at federal.
I live in Chicago but my business is in another state. Does the ruling still apply? Yes. The COVID disaster declaration was nationwide, so the federal postponement applies regardless of which state you operated in. The location of your residence or business in Chicago, the suburbs, or anywhere in Illinois does not change the federal analysis.
What if my CPA already abated some penalties under First-Time Abate or reasonable cause? That generally does not preclude a Kwong-based claim for what is left, but you will want to coordinate so you do not double-claim the same dollars.
What is the absolute hard deadline? For most pandemic-period claims, July 10, 2026. Some claims have earlier or later deadlines depending on when the return was filed and when the tax was paid, so check each year individually.
The Bottom Line for Chicago and Illinois Taxpayers
Kwong v. United States may be one of the most consequential tax cases for ordinary taxpayers in years. It does not guarantee anyone a refund. What it does is open a door that almost everyone assumed was closed — and that door closes for good in summer 2026 unless something is filed.
If you paid IRS penalties or interest at any point during the COVID era and the dollars are large enough to matter, the rational move is to pull your transcripts now, evaluate the math, and either file a protective claim yourself or get someone qualified to do it before the limitation period runs out. The cost of being wrong is filling out a form. The cost of doing nothing, if the courts side with Kwong, is leaving the money on the table forever.
As a Chicago-based CPA and tax firm, we are actively reviewing pandemic-era penalty and interest exposure for clients across Chicago, Cook County, and the rest of Illinois — and filing protective claims where the numbers justify it. If you would like us to take a look at your IRS account transcripts before the July 10, 2026 deadline, here is how to get in touch:
