By Aimee Reavling, CPA, Director and Sara Jacobi, CPA, Firm Director of Taxation at Blue & Co.
Recent court decisions, including Kwong v. United States, may create an opportunity for taxpayers to seek refunds or abatements of certain federal penalties and related interest assessed by the IRS during the COVID-19 period. In Kwong, the court concluded that the federal disaster declaration tied to COVID-19 should have automatically postponed certain federal tax filing and payment deadlines from January 20, 2020, through July 10, 2023. This issue is not limited to income tax matters.
Depending on the facts, it may also affect certain employment, excise, estate, and gift tax penalties, as well as some international return penalties.
If that interpretation is ultimately upheld, some taxpayers may be eligible to recover penalties and interest assessed during that period. Depending on the facts, this may affect certain federal income tax, employment tax, and other penalty assessments. The IRS disagrees with this interpretation, and the issue remains unsettled.
In many cases, refund claims must be filed within three years of the return filing date or two years of payment, whichever is later. For most affected taxpayers, that means action should be taken on or before July 10, 2026.
Blue & Co. is actively reviewing its records to identify clients who may benefit from filing a protective claim with the IRS to preserve their rights while this issue is being resolved. IRS Form 843 is the procedural vehicle to file the protective claim. If our review indicates you may be affected, your Blue advisor will contact you soon with additional information and next steps.
What Taxpayers Should Do Now
If you paid federal penalties or related interest during the COVID-19 period, or if you have questions about whether a protective claim may be appropriate, contact your Blue & Co. advisor. Our team can help assess your situation and determine whether action should be taken to preserve your rights. We are committed to helping clients evaluate developments like this promptly and thoughtfully so they can take appropriate action where warranted.
