During the COVID-19 pandemic, many taxpayers experienced delays, uncertainty, cash flow pressure, and administrative challenges. At the same time, the IRS continued assessing penalties and interest on certain late filings, late payments, and other tax obligations. A recent federal court case may change how those penalties and interest should have been handled.



In Kwong v. United States, the U.S. Court of Federal Claims addressed how federal tax deadlines were affected by the COVID-19 federal disaster declaration. The court’s reasoning suggests that certain filing and payment deadlines falling during the COVID disaster period may have been automatically postponed through July 10, 2023. If that reasoning ultimately stands, some penalties and interest assessed by the IRS during that period may have been improper.

This could matter for individuals, businesses, trusts, estates, and other taxpayers who paid, or were assessed, IRS penalties or interest connected to tax deadlines during the period beginning January 20, 2020, and ending July 10, 2023. Potentially affected amounts may include failure-to-file penalties, failure-to-pay penalties, estimated tax penalties, certain information return penalties, and interest that may have started accruing earlier than it should have.

However, this issue is not fully settled. The government has appealed the Kwong decision, and future court rulings or IRS guidance could expand, limit, or reject the broader application of the case. In other words, this is not an automatic refund program, and taxpayers should not assume they are entitled to money back without reviewing their specific facts.

The reason this matters now is timing. Many taxpayers may need to file a refund claim or protective refund claim by July 10, 2026 to preserve their rights while the courts continue to resolve the issue. A protective claim does not guarantee a refund, but it may help preserve a taxpayer’s ability to recover amounts later if the courts ultimately uphold the taxpayer-favorable interpretation.

If you paid IRS penalties or interest connected to 2019, 2020, 2021, 2022, or other COVID-era tax obligations, you may want to review your IRS transcripts, tax records, notices, and payment history with your CPA or tax advisor. If penalties or interest were assessed or paid during the COVID relief period, your advisor can help determine whether filing IRS Form 843, Claim for Refund and Request for Abatement, or another protective claim is appropriate.



As always, this information is intended for general educational purposes only and should not be treated as tax or legal advice. Every taxpayer’s facts are different, and the rules governing refund claims, abatement requests, statutes of limitation, and protective claims can be technical. If this issue may apply to you, we encourage you to speak with your tax professional as soon as possible so you do not miss a potential deadline.

At Exchange Resource Group, our focus remains on helping clients understand the tax rules that may impact their real estate investment planning. While this particular issue is broader than 1031 exchanges, it may affect many investors, business owners, and taxpayers who paid IRS penalties or interest during the pandemic period. Real estate markets will continue to change. Tax scenarios continue to morph. Investor goals will continue to evolve. We are here to assist in understanding how taxes will affect investors and how 1031 exchanges can be used to create generational wealth!

Exchange Resource Group, LLC

(303) 789-1031 • Info@erg1031.com

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