The IRS isn’t advertising that tens of millions of taxpayers may potentially be owed a significant refund from the COVID-19 era, but tax advisers are spilling the beans on how to claim it.
A court ruling in Kwong v. United States last November suggests some penalties and interest assessed during the nearly 3.5-year COVID-19 federal disaster period may have been improper, meaning taxpayers may be entitled to refunds or abatements of those amounts.
The reason the IRS has likely been quiet about it is that it disagrees with the ruling, and the independent National Taxpayer Advocate (NTA) within the IRS said in a blog post it anticipates the Department of Justice will appeal the decision. So, the refund isn’t a sure bet — but there’s no time to wait because the deadline to claim it is July 10.
“Even if the IRS disagrees with the Kwong decision, I believe it has an obligation to inform taxpayers about their rights, so taxpayers don’t miss the claims deadline if the ultimate resolution of this issue supports their right to the refund or abatement of interest and penalties,” NTA said in the blog post.
Taxpayers must submit a claim for a refund or abatement by July 10 in case the ruling holds, experts said. By law, taxpayers only have three years from the time the return was filed or two years from the time the tax was paid, whichever is later, to file for a potential refund or reduction in penalties or interest. Since the court ruling suggested tax deadlines were moved to July 10, 2023, three years from that date would be July 10, 2026 — the last day to preserve your claim, tax lawyers said.
“Millions of taxpayers could be eligible, but if people don’t file claims before July 10, 2026, they lose out on the potential for a refund or abatement,” said Jon Wasser, partner at Fox Rothschild who focuses on tax issues.
Who Is Eligible for a Potential Refund or Abatement?
Any taxpayer, including individuals, small businesses, large corporations, estates, and trusts, could be eligible, NTA said.
“The issue reaches taxpayers with obligations related to income, employment, estate, gift, and excise taxes,” NTA said. “It may also affect taxpayers who filed late international information returns, which can result in significant penalties even when no tax is due.”
How Do You Know If You’re Eligible?
Use IRS tax transcripts to check if you’re owed anything, experts said.
IRS tax account transcripts show each year’s tax information, including filing status, taxable income, and adjustments made after the original return was processed. They also show payments, penalties, and interest with dates they were made or assessed.
If the IRS charged you any interest or penalties between January 20, 2020 and July 11, 2023, you may want to explore a refund claim.
Tax account transcripts are available online by registering to use the Individual Online Account to view, print, or download — or by mail. Americans can order one by mail on the IRS website or by calling the automated phone transcript service at 800-908-9946. It should arrive in five to 10 calendar days.
How Do You File a Claim?
Tax professionals can file claims on behalf of a taxpayer, or a taxpayer may file one using IRS Form 843 (Claim for Refund and Request for Abatement), using information from the tax transcript, Wasser said.
A taxpayer should specify on the form that it’s a protective claim based on the Kwong v. United States decision regarding Section 7508A(d) and the COVID-19 disaster period, lawyers said.
“You’re basically telling the IRS, ‘here’s a refund claim, put it on hold for now’” until the case has a final determination, Wasser said. If, after all litigation is complete and the IRS must issue refunds, you would have preserved your right to claim yours.
Taxpayers do not have to file a separate form for each tax year, but they do need to identify the specific tax year or years involved, NTA said.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to her free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
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