The “COVID Penalty Refund” Claim: What’s Real, What’s Not, and What You Should Do

There’s been a lot of noise lately about a potential “COVID tax refund” tied to penalties paid during the pandemic. Some articles are claiming that millions of taxpayers may be eligible for refunds based on a recent court case. Before you get too excited — or too skeptical — let’s slow down and walk through what’s actually happening.

The Claim in Plain English

The argument comes from a case called Kwong v. United States. The position is this: because COVID was a federally declared disaster, tax deadlines should have been extended continuously from early 2020 through mid-2023 under the disaster relief provisions of the Internal Revenue Code.

If that interpretation were upheld, it could mean late filing penalties should not have applied during that period, late payment penalties may be refundable, and interest may have been improperly charged. That’s where the “you may be owed money” headlines are coming from.

The Problem: This Is Not Settled Law

Here’s the part that’s getting glossed over in the headlines.

• This is one court decision, not final law

• It is not binding nationwide precedent

• The IRS has not adopted this position

• It will very likely be challenged or appealed

In other words: this is an argument, not a rule.

What the IRS Actually Did During COVID

During the pandemic, the IRS issued specific, limited deadline extensions. For example, 2019 returns were extended from April 15, 2020 to July 15, 2020. 2020 returns were extended to May 17, 2021. These were explicit extensions for defined periods — not a continuous blanket extension through 2023.

That distinction matters. The current claim depends on arguing that the IRS should have done more than it actually did — that the disaster relief provisions required a broader, ongoing extension that the IRS never implemented.

So Does This Actually Work?

Realistically, there are three possible outcomes:

Most likely: The IRS challenges the position and most claims are denied. Middle ground: Some limited relief is allowed, but only in very specific situations. Least likely: Broad acceptance and large-scale refunds.

If you’re making decisions based on this, you should assume the outcome is uncertain and likely to be contested.

Then Why Are People Filing Claims?

Because of something called a protective claim.

A protective claim does not mean “I’m entitled to this money today.” It means “If this position is ultimately upheld, I want to preserve my right to a refund.” Most of these claims are being filed using Form 843. The purpose is to get the claim on record before any applicable statute of limitations expires — so that if the courts eventually rule in favor of taxpayers, your claim is already in the system.

Should You File a Claim?

It depends on your situation. A claim may make sense if you paid significant penalties or interest during 2020–2022, the potential refund is meaningful relative to the cost of filing, and you understand the outcome is uncertain. A claim may not make sense if the amounts involved are small, you’re expecting a guaranteed refund, or you’re uncomfortable taking a position that may be denied.

There Are No Guarantees Here

I need to be direct about this. The IRS has not agreed with this interpretation. Courts have not reached a final decision. Each claim will be evaluated individually. Filing a claim does not guarantee a refund. Anyone who tells you otherwise is either misinformed or selling something.

What a Defensible Approach Looks Like

If you decide to move forward, the process should look like this: review your transcripts and identify penalties and interest paid during the relevant period, determine whether the potential refund justifies filing a claim, prepare a properly documented claim based on the current legal arguments, and be prepared for delays, requests for additional support, and possible denial.

Final Thoughts

This is not a scam. But it is also not a guaranteed opportunity. It sits in a gray area between a legitimate legal argument and an unresolved tax position. The biggest mistake you can make is assuming this is “free money.”

A better way to think about it: you are preserving your rights in case the law develops in your favor. That’s it. That’s the honest framing.

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If you’re considering filing a protective claim and want help reviewing your transcripts, evaluating whether it makes sense for your situation, or preparing a defensible submission, that’s something we can walk through together. The goal is simple: understand the facts, evaluate the risk, and make a decision based on reality — not headlines. Schedule a consultation or learn more about our IRS representation services.