Millions of Americans paid IRS penalties during the COVID-19 pandemic, wrote off the loss, and never looked back. That may have been a costly mistake. The IRS’s own independent watchdog now says tens of millions of taxpayers could be entitled to refunds on penalties assessed between 2020 and 2022, and the deadline to stake your claim is July 10, 2026. There is no automatic payout. You have to complete a paper form, mail it to the IRS, and do it before the clock runs out. Miss the cutoff, and the right to recover that money vanishes permanently.
The amounts are not small. Failure-to-pay and failure-to-deposit penalties routinely reach hundreds or thousands of dollars per taxpayer, depending on the balance owed and how long it went unpaid. For small-business owners who fell behind on payroll taxes during lockdowns, the totals can be far higher.
Where this refund opportunity comes from
In April 2026, the National Taxpayer Advocate (NTA), the IRS’s independent office that advocates on behalf of taxpayers, published a detailed alert warning that tens of millions of people may qualify for penalty refunds tied to the pandemic years. That estimate has not been independently verified, and no granular IRS data breaks the figure down by penalty type, income level, or filing status. But the legal foundation is real.
The key case is Kwong v. United States, decided in the U.S. Court of Federal Claims. The ruling centers on Internal Revenue Code Section 7508A, which allows the IRS to postpone tax deadlines and abate penalties when a federally declared disaster disrupts taxpayers’ ability to comply. The court found that the federal COVID-19 disaster declarations should have shielded far more taxpayers from penalties than the IRS originally acknowledged. As of June 2026, the case has not been reported as final or fully resolved on appeal, but its reasoning has opened the door for broad refund claims.
During the pandemic, the IRS did waive certain penalties automatically through a series of relief notices collected on its COVID-19 guidance page. Those blanket waivers, however, never covered every penalty category. Millions of taxpayers who were assessed penalties outside the scope of that automatic relief simply paid and moved on. The evolving case law now suggests many of those penalties were improper under the disaster relief rules all along.
Why July 10 matters
The July 10, 2026, deadline is driven by the statute of limitations on refund claims under Internal Revenue Code Section 6511. Normally, taxpayers have three years from the date of filing (or two years from the date of payment) to request a refund. But the COVID-19 disaster declarations triggered extended deadlines under Section 7508A, stretching the refund window for affected penalty periods. For penalties connected to the 2020 tax year at issue in Kwong, that extended clock runs out on July 10. Once it expires, the IRS has no legal authority to issue a refund, even if a court later confirms the penalties were wrong.
As of June 2026, the NTA has not reported any formal extension or special grace period beyond that date. The IRS has occasionally broadened relief windows in the past when litigation or public pressure warranted it, but nothing indicates that will happen here. Anyone who might qualify should treat July 10 as a hard deadline.
What is still unresolved
The legal question is not fully settled. While the Kwong decision and related rulings favor taxpayers, the IRS has not conceded the issue across the board and, as of June 2026, has not published formal guidance or an internal memo responding to the ruling. The IRS does publish aggregate civil penalty statistics through its Statistics of Income program, and those tables confirm that penalty activity was enormous during the pandemic years. They do not, however, isolate how many of those assessments are now refundable under the legal theories raised in Kwong.
That uncertainty is exactly why the NTA recommends a specific strategy: filing a protective claim. A protective claim preserves your right to a refund while the legal questions continue to develop. You will not get an immediate check, but you will not lose your seat at the table if courts or the IRS ultimately side with taxpayers.
Who should consider filing
The potential pool is broad. It includes individuals who filed late or paid late during 2020, 2021, or 2022, small businesses that struggled with payroll tax deposits, and self-employed workers who missed estimated tax deadlines. Many of these taxpayers paid their penalties years ago and have no idea that subsequent legal developments could entitle them to money back.
If you received a failure-to-pay or failure-to-deposit penalty for any tax period that overlaps with the federal COVID-19 disaster declarations, and that penalty was not already reversed under the IRS’s automatic relief programs, you should take a closer look. Note that this applies to federal penalties only; state-level penalties are governed by separate rules.
The quickest way to check is to pull your IRS account transcript, which shows every penalty assessed and whether it was abated. You can access transcripts through your online IRS account or by requesting one with Form 4506-T.
How to file before the deadline
The process is paper-only and requires IRS Form 843, the standard form for requesting penalty abatement or a refund. The IRS’s own penalty relief page confirms that when abatement cannot be handled by phone, a written request through Form 843 is the required path. There is no electronic filing option for this form.
The NTA’s procedural guidance draws a clear distinction between two approaches:
- Formal claim: You request a specific dollar amount and spell out the legal grounds, citing the COVID disaster relief authority and relevant court decisions like Kwong. This is the stronger filing if you know exactly what you are owed.
- Protective claim: You preserve your right to a refund without nailing down precise figures. This is the safer option if you are unsure of your exact exposure but want to keep the door open while the law develops.
Either way, you need to complete a separate Form 843 for each penalty type and tax period, sign it, and mail it to the IRS service center listed in the form’s instructions. Supporting documents strengthen your claim: copies of IRS penalty notices, proof of payment, and any correspondence related to COVID-era filing or payment difficulties.
You do not need a tax professional to file, though one can help frame the legal arguments. Taxpayers who cannot afford professional help can contact the Taxpayer Advocate Service or find a Low Income Taxpayer Clinic through the IRS website for free or low-cost assistance.
What happens after you file
Do not expect a fast turnaround. The IRS typically takes several months to process Form 843 claims, and given the volume of potential filings before this deadline, processing times could stretch further. If you file a protective claim, the IRS will likely hold it in suspense until the underlying legal questions are resolved, whether through further court rulings or a formal IRS policy change. You will not receive a refund check while the claim is pending, but your right to one will be preserved.
If the IRS denies your claim, you have the right to appeal within the agency or, in some cases, take the matter to court. The NTA’s office can assist with disputes if you hit a wall.
Why waiting is the worst option for your penalty refund
If the statute of limitations expires on July 10 without a claim on file, you permanently lose the ability to recover those penalty payments, no matter what courts decide afterward. A protective claim costs nothing beyond a stamp and a few minutes of paperwork, and it keeps your options alive.
The combination of pandemic disruption, shifting legal interpretations, and rigid IRS deadlines has created an unusual window. For anyone who paid penalties between 2020 and 2022, the next step is straightforward: pull your transcripts, check for unabated penalties, and get Form 843 in the mail before July 10, 2026. The worst outcome of filing is that nothing changes. The worst outcome of not filing is that you leave money on the table permanently.
