Millions of Americans and businesses may have an unexpected opportunity to reclaim money from the Internal Revenue Service (IRS) due to a recent court ruling that could reshape how tax penalties and interest were assessed during the COVID-19 pandemic. The decision, which has sent ripples through the tax world, centers on the federal government’s handling of tax deadlines and penalties during the unprecedented disruptions caused by the pandemic.
At the heart of the matter is a U.S. Court of Federal Claims ruling that expanded the interpretation of tax code provisions related to federally declared disasters. According to USA Today, the court found that the COVID-19 public health emergency, which spanned from January 20, 2020, to May 11, 2023, qualified as such a disaster under Section 7508A(d) of the tax code. This provision requires tax deadlines to be postponed for the duration of the disaster period plus an additional 60 days, effectively pushing the tax deadline for the 2019 through 2022 tax years to July 10, 2023.
This reinterpretation has profound implications. As IBTimes UK reports, the court’s decision means that the IRS may have lacked authority to assess underpayment interest or other penalties until 60 days after the end of the disaster period. In other words, any penalties or interest charged between January 20, 2020, and July 10, 2023, may have been assessed in error. Tax attorney Jon Wasser summed up the potential impact: “Millions of taxpayers could be eligible.”
Tax professionals like Jon Gustafson of Venn Tax and Bookkeeping have been quick to alert the public. “Because it was a disaster for those three years, technically the courts have said the taxes were not due at all during those times,” Gustafson told ABC News. He emphasized that anyone—individuals or businesses—who paid penalties, late fees, or interest during the pandemic period should review their tax records and consider filing a claim.
The process for seeking a refund is relatively straightforward but time-sensitive. Taxpayers must file IRS Form 843 to request a refund of penalties or interest assessed during the specified period. The final deadline to file a claim is July 10, 2026, as established by the statute of limitations, which generally allows three years from the filing deadline or two years from the date the tax was paid, whichever is later, according to USA Today. Gustafson cautioned, “The deadline on this is July 10 of this year, so after July 10, you’re too late. You can’t request those funds. Even though you might not get it, because the IRS might win the court case. You might as well try now.”
Taxpayers are advised to check their IRS account transcripts, which detail all penalties, interest, and payments for each tax year. These transcripts can be accessed online through the IRS Individual Online Account, requested by mail, or obtained via the agency’s automated phone service. Once requested, transcripts typically arrive within five to ten days, per IBTimes UK.
The potential scale of refunds is significant. Millions of tax returns were processed during the pandemic years, and the complexity of rapidly changing tax legislation created numerous scenarios where initial filings may not have captured all available benefits or credits. The American Rescue Plan Act, for example, expanded the Child Tax Credit and made it fully refundable for many families, while also excluding up to $10,200 of unemployment compensation from federal taxes for certain income levels in 2020, according to Forbes. Recovery Rebate Credits for missed stimulus payments and temporary expansions of the Earned Income Tax Credit (EITC) also created opportunities for additional refunds.
However, the current court ruling specifically affects penalties and interest assessed during the pandemic period. Tax experts note that the largest claims may come from businesses that struggled with cash-flow disruptions during lockdowns and accumulated failure-to-pay penalties. A high-profile example involves Western Digital, a data storage company that filed a lawsuit seeking a refund of roughly $21 million in interest paid during the pandemic pause—a portion of the $53.6 million it paid in taxes following a dispute settled in 2023. Cases like this could set important precedents for how broadly the court’s interpretation will be applied in the future.
For individual taxpayers, the picture is equally compelling. Early filers for the 2020 tax year may have missed out on benefits enacted after they submitted their returns, such as the unemployment compensation exclusion that became law in March 2021. Families with children and low-to-moderate income workers—particularly those without qualifying children—are among the groups most likely to be owed money, due to expansions in credits and eligibility rules during the pandemic years.
Filing for a refund does not guarantee success, as the IRS is expected to appeal the ruling. Still, tax professionals recommend filing a “protective claim” using Form 843, which signals to the IRS that you are seeking a refund but are willing to wait for the courts to reach a final decision. As IBTimes UK explains, referencing the case of Kwong v. United States and the disaster provisions in Section 7508A(d) strengthens such claims.
For those unsure whether they qualify, reviewing pandemic-era tax returns against expanded benefits and credits is crucial. If you received unemployment compensation in 2020, check whether you benefited from the $10,200 exclusion. For the Child Tax Credit, compare the amounts claimed in 2020 and 2021 to the expanded figures. Recovery Rebate Credits should also be reviewed to ensure all missed or partial stimulus payments were claimed. If necessary, consult a tax professional to identify missed opportunities and ensure amended returns are filed correctly.
Time is of the essence. The IRS has faced significant backlogs, and amended returns typically take longer to process than original filings. Acting promptly is essential to preserve your rights to any owed refunds. Missing the July 10, 2026, deadline could permanently eliminate the chance to recover money you may be entitled to.
While the legal debate over the validity of pandemic-era tax penalties and interest may take years to resolve, the window for taxpayers to act is closing fast. Millions stand to benefit if they review their records, file the necessary forms, and get their claims in before the deadline passes. For many Americans, the financial legacy of the pandemic may not be over just yet.