Important Tax Update: How a Recent Court Decision May Entitle You to a Refund or Removal of IRS Penalties and Interest

Kwong v. United States — Deadline to Act: July 10, 2026

A recent court ruling — Kwong v. United States — may allow certain taxpayers to get back money they paid in IRS penalties and interest during the COVID-19 pandemic, or have those charges removed if they remain unpaid. If you were assessed penalties or interest on your federal tax obligations between January 20, 2020 and July 10, 2023, you may qualify for relief.

Time is of the essence! For most taxpayers, the deadline to file a protective claim is July 10, 2026.

Please read this alert carefully and contact your BMSS advisor to determine whether this opportunity applies to you.

DEADLINE: July 10, 2026 If you already paid IRS penalties or interest during the COVID period, you must file a protective claim by this date to protect your right to a refund while the case works its way through the courts. The filing of this claim determines your place in line. It does not mean you’ll automatically receive money, but it preserves your right to receive a potential refund if the ruling holds up. If you still have unpaid penalties or interest, you can request to have them removed. While that request isn’t subject to the July 10th deadline, we still recommend acting sooner rather than later. If you paid an IRS balance within the last two years, your deadline may be later than July 10, 2026.

Kwong Decision Details

The U.S. Court of Federal Claims recently ruled that mandatory disaster relief rules in effect during the COVID-19 pandemic were broader than the IRS acknowledged. Specifically, the court found that certain tax deadlines were automatically extended for the entire COVID-19 disaster period from January 20, 2020 through July 10, 2023, and that the IRS improperly limited that relief.

The IRS took the position that it could choose how much relief to provide and for which situations. The court disagreed, ruling that the law required automatic relief for qualifying taxpayers. As a result, penalties and interest that were charged without accounting for this extended period may now be eligible for a refund or removal.

IMPORTANT: This Ruling Is Under Appeal The IRS has challenged this ruling in court. Nothing is final and the IRS will not automatically issue refunds. Cases like this typically take two or more years to work through the appeals process, meaning any refunds could be well beyond 2027. That said, waiting is not an option. You must file a claim before the applicable deadline to protect your rights. If you miss the deadline, your chance at a refund or removal is likely gone regardless of how the case ultimately ends.

Does This Apply to You?

This relief may be available to a wide range of taxpayers. Here are some common situations that could qualify:

• You filed or paid taxes late during the COVID period and were charged with penalties or interest.
• You received an IRS notice or went through an audit that resulted in additional tax, penalties, or interest. Depending on the nature of the assessment, some or all of those charges may qualify.
• You’re currently dealing with an IRS matter (an appeal, examination, or other dispute) that involves penalty or interest charges from that period.

What Does This Mean for You?

The relief available to you depends on where things currently stand with the IRS:

• If you’ve already resolved your IRS balance and paid penalties or interest during the COVID period, you may be owed a refund.
• If you paid an IRS balance in the last two years that included COVID-era penalties or interest, you may still qualify and, in some cases, your deadline may be later than July 10, 2026.
• If you still owe the IRS and your balance includes COVID-era penalties or interest, you may be able to have those charges reduced or removed.

CAUTION: Watch Out for Third-Party “Refund Mills” As word spreads about this ruling, there are already advertisements of Kwong-related refund services at high contingency fees (some as high as 30%). BMSS is actively reviewing client accounts to identify potential claims. There is no need to engage outside services when your BMSS advisor can evaluate your situation with full knowledge of your tax history. We want to be your trusted first resource, and are taking a careful, well-documented approach on behalf of our clients.

What Should You Do Now?

• Contact your BMSS advisor to discuss whether you may have a qualifying claim.
• Do not delay, the July 10, 2026 deadline for protective claims is firm for many taxpayers.
• Be cautious of third-party services advertising Kwong-based refund claims for a percentage of recovery.

We are here to help you navigate this opportunity with care. Please do not hesitate to reach out to your BMSS advisor to get started. Call our office at (833) CPA-BMSS or visit our website for contact information.