A little-known legal dispute involving COVID-19 tax relief could allow millions of taxpayers to seek refunds of certain IRS penalties and interest they paid during the pandemic. However, the opportunity is not automatic, and taxpayers generally must act before July 10, 2026, to preserve their rights. The IRS has not announced that it is issuing refunds automatically, and the underlying court decision remains under appeal. Taxpayers who may qualify should understand what is happening and determine whether filing a protective refund claim makes sense.
Key Takeaways
- Millions of taxpayers may qualify for refunds of certain COVID-era IRS penalties and related interest.
- Most taxpayers must file a claim by July 10, 2026, to preserve potential refund rights.
- The legal issue stems from a federal court decision interpreting disaster relief during the COVID-19 emergency.
- The IRS is appealing the decision, meaning refunds are not guaranteed.
- Eligible taxpayers generally use IRS Form 843 to request relief.
Why This Is Happening
During the COVID-19 national emergency, the federal government issued widespread disaster declarations and extended numerous tax filing and payment deadlines.
In late 2025, a federal court ruled that the IRS may have improperly assessed certain penalties and interest during portions of the federally declared disaster period. As a result, taxpayers who paid qualifying penalties or interest may have legal grounds to request refunds or abatements.
However, because the Treasury Department and IRS are appealing that decision, the outcome remains uncertain. The National Taxpayer Advocate recommends that potentially eligible taxpayers file a protective refund claim before the statute of limitations expires to preserve their rights.
Who Might Qualify?
According to the National Taxpayer Advocate, taxpayers who may benefit include individuals and businesses that paid certain IRS charges during the COVID disaster period.
Potentially refundable items may include:
| Potentially Eligible Charges | Examples |
|---|---|
| Failure-to-file penalties | Late-filed tax returns |
| Failure-to-pay penalties | Taxes paid after the original due date |
| Estimated tax penalties | Underpayment of estimated taxes |
| Certain interest charges | Interest that may have begun accruing too early |
| Overpayment interest issues | Certain IRS calculations during the disaster period |
Not every taxpayer who paid a penalty qualifies, and eligibility depends on the facts of each case.
The July 10 Deadline Is Important
The National Taxpayer Advocate warns that July 10, 2026, is generally the deadline for many taxpayers to preserve potential refund rights.
Even though the legal dispute has not been fully resolved, filing a protective claim before that date can preserve your ability to receive a refund if the courts ultimately rule in taxpayers’ favor.
Missing the deadline could permanently eliminate your ability to recover qualifying amounts.
How to Check Whether You Paid These Penalties
Before filing a claim, taxpayers should review their IRS account information.
You may wish to:
- Review IRS account transcripts.
- Look for penalties or interest assessed between January 2020 and the end of the COVID disaster period.
- Determine whether those assessments fall within the categories discussed by the National Taxpayer Advocate.
IRS account transcripts can be obtained through your online IRS account or by requesting them from the IRS.
How to File a Protective Claim
Most taxpayers would use IRS Form 843, Claim for Refund and Request for Abatement.
A protective claim generally:
- Preserves your legal rights.
- Does not guarantee payment.
- Allows the IRS to consider your claim once the litigation is resolved.
Because these claims involve ongoing litigation, many taxpayers may choose to consult a qualified tax professional before filing. The National Taxpayer Advocate notes that taxpayers generally do not need to calculate the exact refund amount before submitting a protective claim.
What Federal Employees and Retirees Should Know
Federal employees and retirees are affected in the same way as other taxpayers. If you:
- filed tax returns late during the COVID emergency,
- paid IRS late-filing or late-payment penalties,
- incurred estimated tax penalties,
- or paid related IRS interest,
you may wish to review your IRS account to determine whether you could qualify.
This issue is unrelated to federal retirement benefits, FERS, CSRS, Social Security, or the Thrift Savings Plan. It concerns federal income tax administration during the COVID emergency period.
Frequently Asked Questions
Is the IRS automatically sending refunds?
No. The National Taxpayer Advocate states that relief is generally not automatic, and most taxpayers must file a claim before the applicable deadline.
Is everyone who paid a penalty eligible?
No. Eligibility depends on the type of penalty, when it was assessed, and the specific facts of each taxpayer’s situation.
Is the court decision final?
No. The IRS is appealing the ruling, so the legal outcome remains unresolved. Filing a protective claim simply preserves your rights if the taxpayers ultimately prevail.
What form is generally used?
Most taxpayers would use IRS Form 843 (Claim for Refund and Request for Abatement).
