The federal government, via the Internal Revenue Service (IRS) may owe tens of millions of Americans a refund — and most of them have no idea.
Not because of a new law, not because of a presidential order, but because of a quiet court ruling handed down last November that is only now beginning to ripple through the tax world with enough force to reach ordinary people. The deadline to act is July 10, 2026. After that, the window closes permanently.
The IRS Collected Money It Wasn’t Supposed To
The case is called Kwong v. United States, decided in November 2025 by Judge Molly Silfen of the U.S. Court of Federal Claims. The ruling centers on a provision of the tax code that automatically postpones filing and payment deadlines during federally declared disasters. The COVID-19 pandemic was declared a federal disaster on January 20, 2020. That declaration remained in effect until May 11, 2023 — three and a half years. Add the 60-day grace period the code provides, and the covered period runs through July 10, 2023.
The court’s conclusion was straightforward but its implications enormous: during that entire stretch, the IRS should not have been assessing penalties for late filing or late payment. It should not have been charging interest on amounts tied to deadlines that were, by operation of law, postponed. But it did. Millions of times over.
12 Million Taxpayers Can Get Some Cash Back
The numbers give a sense of the scale. In fiscal year 2022 alone, the IRS issued more than 12 million estimated-tax penalties and upward of 16 million failure-to-pay penalties, totaling more than 12 billion dollars. Not all of those fall within the ruling’s scope, but the potential pool is nonetheless enormous — individuals, small businesses, large corporations, trusts, and estates.
The alarm was raised publicly by Erin M. Collins, the National Taxpayer Advocate, who heads the Taxpayer Advocate Service, an independent organization operating within the IRS on behalf of taxpayers. In a detailed blog post, Collins described what she called a “major refund opportunity” and warned that most affected taxpayers will never know about it unless someone tells them.
“Unless the IRS or Congress acts to ensure all affected taxpayers will receive refunds,” Collins wrote, “taxpayers seeking refunds for penalties and interest they paid relating to that period will, in most cases, need to file claims by July 10, 2026.”
The IRS Isn’t Going to Tell You This
To claim it, taxpayers must submit Form 843, the Claim for Refund and Request for Abatement, by paper mail — there is no electronic filing option. Collins recommends certified mail to establish proof of submission. On the form, she advises writing across the top: “Protective Refund Claim Pursuant to Kwong Case.”
But experts are urging caution about what this actually means in practice for most filers. “The real significance of the story is not that the IRS suddenly announced a new refund program,” one tax attorney told Yahoo Finance.
“The significance is that a taxpayer-favorable court interpretation has created a possible path to challenge certain COVID-era penalties and interest.” He added that for a typical individual taxpayer, any refund may be fairly modest. “The number of taxpayers who will actually recover money is likely much smaller than the headlines suggest.”
What Qualifies for the Refund
penalties assessed for failing to file on time, for not paying taxes owed, and for not making estimated tax payments during the COVID disaster period. Also covered is interest that began accruing earlier than it legally should have.
What does not qualify: the voluntary Recovery Rebate Credit tied to stimulus checks, whose deadline passed on April 15, 2025, with roughly one billion dollars in unclaimed funds returning permanently to the Treasury.
The Department of Justice is expected to appeal the Kwong ruling, meaning the legal ground beneath all of this remains unsettled. Collins acknowledged the uncertainty but argued the IRS has an obligation to inform taxpayers regardless of how the appeal resolves — because if the ruling ultimately stands and taxpayers have already missed the filing deadline, those refunds are gone forever.
Collins has asked the IRS to publicize the issue widely and to consider granting an additional six-month extension. As of now, neither has happened. The IRS has not launched a public campaign, no letters have gone out to potentially affected filers, and the agency has not committed to administrative relief. The deadline stands.
