by Jim Daloisio, Director of Legal Services at Torchlight Tax.
A federal court has ruled that the IRS exceeded its authority and improperly charged penalties and interest during the national COVID-19 emergency from 2020 to 2023. The court found that 2019 federal law REQUIRED the IRS not to charge penalties and interest during this period, and taxpayers who paid these illegitimate penalties and interest can file for a refund.
Let’s talk about a major federal case: Kwong v. United States, decided by the United States Court of Federal Claims.
In this case, the court found that the IRS did not have the legal authority to charge penalties and interest during the COVID-19 disaster relief period.
Under Internal Revenue Code Section 7508A(d), deadlines were automatically postponed by law—not by IRS discretion.
The court stated: “In sum, under the 2019 statute, the automatic, or mandatory, extension period began on January 20, 2020, and ended on July 10, 2023.”
That means the legal due date for many taxpayers was July 11, 2023.
If there was no legal deadline, then penalties and interest could not legally accrue—and the court ruled exactly that.
This is a serious case, and the IRS lost the first round.
Now, the IRS can still appeal this decision, and as of now, it has not been issuing refunds based on this case.
Taxpayers who believe they were improperly charged penalties or interest between 2020 and 2023 must file a formal refund claim—Form 843—no later than July 10, 2026.
If you do not file by that date, you may lose your right to claim a refund.
We do not know how this will ultimately play out. One possibility is that the IRS allows the key deadline to pass, limiting the number of refund claims, and then proceeds with an appeal.
Will the IRS prevail in the end? We do not know.
But this is not a frivolous case. It is a serious ruling against the IRS, and it has real financial implications.
If you received substantial penalties or interest during the COVID-19 period, you should take a close look at this. We are offering a free consultation for those who feel they were incorrectly penalized during the COVID-19 pandemic national emergency.
You are also invited to visit the Torchlight Tax website and YouTube channel to view over 400 tax-saving and asset protection strategies in blog articles and videos.
The IRS lost a serious case here. They are expected to resist paying back refunds they collected on COVID-era penalties and interest. Even if the IRS loses on appeal, taxpayers who did not file correctly for a refund by the July 10, 2026, deadline will likely miss out. Some would not be surprised if, in such a situation, the IRS used any technicality they could find to reject a claim and then reject any resubmitted claims arriving on or after July 11, 2026, as too late.
Contact Torchlight Tax for a free consultation at 877-758-7797 or fill out a form here.
