Tens of Millions of U.S. Taxpayers Face July 2026 Deadline for COVID-Era Penalty Refunds

Key facts

• The National Taxpayer Advocate issued a notice on Thursday that tens of millions may qualify for refunds or abatements.
• The relief stems from the Kwong case ruling that COVID disaster declaration postponed filing and payment deadlines from Jan. 20, 2020, to May 11, 2023.
• Taxpayers must file refund claims by July 10, 2026, using a paper form unless the IRS changes its process.
• Penalties and interest assessed during the 3.5-year COVID disaster period are subject to abatement.
• The Justice Department may appeal the Kwong decision, creating uncertainty.
• The advocate warned that without action, outcomes may favor the 'well advised' over the 'unaware.'

A Court Ruling Opens the Door for Refunds

Tens of millions of American taxpayers may be entitled to refunds or reduced penalties and interest from the COVID-19 emergency period, following a federal court ruling that retroactively postponed filing and payment deadlines. The National Taxpayer Advocate issued a notice on Thursday alerting the public to the potential relief, which arises from the Kwong case decision. The ruling determined that the tax code's treatment of federal disaster declarations meant that deadlines were effectively suspended throughout the entire 3.5-year period of the COVID disaster declaration, from Jan. 20, 2020, through May 11, 2023.

Why the Relief Is Not Automatic

Despite the court's decision, affected taxpayers will not receive refunds automatically. The National Taxpayer Advocate explained that most individuals must file refund claims by July 10, 2026, using a paper form, unless the IRS or Congress intervenes to streamline the process. 'Because of the infrequency of a disaster lasting this long, most taxpayers, even most tax professionals, did not foresee that filing deadlines and payments deadlines would be postponed for this long,' the advocate wrote. The complexity of the legal situation and the lack of widespread awareness create a significant risk that many eligible taxpayers will miss the deadline entirely.

The Scope of the Ruling and Its Implications

The Kwong ruling's logical extension is that returns and payments made during the COVID disaster period should not be considered late, and therefore should not have been subject to penalties and interest. However, the relief is not guaranteed; the Justice Department may appeal the decision, which could alter the outcome. The taxpayer advocate stressed that 'barring further action by the IRS or Congress to make sure that all taxpayers impacted by the ruling get what they're owed, such taxpayers face a fast-approaching deadline to file their claims.' The advocate's overriding goal is to 'get the word out to as many taxpayers as possible and to avoid disparate results between the well advised and the unaware.'

Timeline and Filing Requirements

Taxpayers seeking refunds for penalties and interest paid during the COVID disaster period must submit their claims by July 10, 2026. The claims must be filed on paper forms unless the IRS updates its procedures. The deadline applies to tens of millions of taxpayers, but the advocate warned that many may not realize they are eligible. The IRS has not yet announced any automated relief or simplified process, leaving the burden on individual taxpayers to take action.

Background: The COVID Disaster Declaration and Tax Deadlines

The COVID-19 pandemic prompted a federal disaster declaration that lasted from Jan. 20, 2020, to May 11, 2023 — an unusually long period. Under the tax code, such declarations automatically postpone filing and payment deadlines, but the practical implications were not widely understood. The Kwong case clarified that this postponement applied throughout the entire declaration, meaning that many penalties and interest assessed during that time may have been improper. The ruling has opened the door for refunds, but the legal landscape remains uncertain pending a possible appeal.

What Comes Next: Urgency and Uncertainty

With the July 10, 2026 deadline fast approaching, the National Taxpayer Advocate is urging widespread awareness to prevent unequal outcomes. The advocate called on the IRS or Congress to act to ensure all affected taxpayers receive refunds if the Kwong decision is upheld. Without such intervention, only those who are well-informed or well-advised are likely to benefit. The coming months will be critical as taxpayers, tax professionals, and policymakers grapple with the implications of the ruling and the looming deadline.

The bottom line

• Tens of millions of U.S. taxpayers may be eligible for refunds or abatement of COVID-era penalties and interest due to the Kwong court ruling.
• The relief is not automatic; taxpayers must file paper claims by July 10, 2026.
• The COVID disaster declaration lasted from Jan. 20, 2020, to May 11, 2023, postponing filing and payment deadlines throughout.
• The Justice Department may appeal the Kwong decision, creating legal uncertainty.
• Without IRS or congressional action, many eligible taxpayers may miss out, creating a disparity between the well-advised and the unaware.
• The National Taxpayer Advocate is working to spread awareness to prevent unequal outcomes.