Tens of millions of taxpayers who were penalized by the IRS during the COVID-19 pandemic may find themselves eligible for a refund or the abatement of penalties incurred while trying to navigate the challenging landscape of tax compliance over the past few years. However, potential recipients must act quickly, as the deadline for filing claims is approaching—specifically, by July 10.
The national taxpayer advocate, serving as an independent watchdog for the IRS, highlighted the urgency of this situation following a federal court ruling from late last year. The ruling determined that due to emergency laws enacted during the COVID-19 pandemic, taxpayers were not obligated to file their returns on time. In the aftermath, the IRS assessed over 120 million penalties on numerous taxpayers for late tax submissions and unpaid taxes occurring between January 2020 and July 11, 2023.
The court case, known as Kwong v. U.S., is still ongoing, but it established a precedent indicating that taxpayers may be entitled to refunds related to these penalties. The taxpayer advocate emphasized that the issue is extensive and affects a wide demographic, rather than just a select few individuals.
In response to the ruling, Ken Kies, an assistant secretary at the Treasury Department, mentioned that the previous administration believes the court’s decision misinterprets the statutory language. Nonetheless, the current situation necessitates that taxpayers act to preserve their claims for potential refunds. Alyssa Maloof Whatley, a director at a tax firm, stressed the importance of filing a claim to maintain the right to any money owed, regardless of future legal outcomes.
Eligibility for potential refunds or penalty abatements affects individuals who filed their tax returns late during the specified period, incurred penalties related to late filings or payments, or were required to file international information returns late. The taxpayer advocate has advised individuals to check their IRS accounts online to review any penalty assessments they may have received during this timeframe.
Worryingly, this situation appears to disproportionately affect low and moderate-income taxpayers, who are often less likely to have access to professional tax representation and may be less informed about significant legal developments such as this case. This lack of awareness raises the risk that they could miss out on rightful refunds.
To initiate their claims, affected taxpayers must complete Form 843, which can be accessed via the IRS website, and submit it through traditional mail to the appropriate service center. Given the looming deadline, the taxpayer advocate has urged individuals to promptly assess their circumstances and consider filing for refunds or relief from penalties.
