What Two Federal Court Rulings Mean for COVID-Era IRS Penalties

If you paid late-filing or late-payment penalties between 2020 and 2023, you may be eligible for a refund

The COVID-19 pandemic didn’t just disrupt daily life. It triggered a federal disaster declaration that legally suspended certain tax deadlines across the country. During that period, the IRS’s automated processing systems continued generating late-filing and late-payment penalties on millions of returns. Most taxpayers paid without question, assuming the charges were valid.

Two independent federal court rulings have since challenged that assumption, and if you paid IRS penalties between 2020 and 2023, there may be money waiting for you to claim.

A little background: what the disaster declaration actually did

When COVID-19 was declared a federal disaster under the Robert T. Stafford Act, it wasn’t just symbolic. The declaration carried specific legal consequences, including the automatic suspension of certain IRS filing and payment deadlines for the affected period.

Most taxpayers never knew this. The penalties arrived looking like any other IRS notice — authoritative, specific, with a dollar amount attached. There was no reason to question them. People paid and moved on. It’s only now, years later, that the legal picture has come into focus.

The two rulings you need to know

Two independent courts examined whether those penalties were legally valid during an active federal disaster declaration. Both concluded they were not.

• Abdo v. Commissioner (2024): The U.S. Tax Court ruled that late-filing and late-payment penalties assessed during the COVID disaster declaration period were invalid. The court found that the disaster declaration legally suspended the IRS’s authority to impose those charges during that window.
• Kwong v. United States (2025): A separate federal court reached the same conclusion independently, without relying on the first ruling to get there.

That independence matters. When two courts reach the same legal conclusion through separate analyses, it strengthens the foundation considerably — both for taxpayers filing refund claims and for how those claims are likely to be received.

So what does that mean for you?

If you were assessed a late-filing or late-payment penalty on a federal tax return between January 20, 2020, and July 10, 2023, paid it in full or in part, and haven’t already received a full refund or abatement, you may have a valid claim.

That covers a wide range of filer types:

• Individual taxpayers: W-2 employees, freelancers, and self-employed individuals
• Small businesses: S-Corps, partnerships, LLCs, and sole proprietors
• Large corporations: Of any size — refund amounts here can be significantly larger than for individuals
• Estates and trusts: Those that filed or paid late during the pandemic period
• International information return filers: Those with penalties on forms such as 5471 and 5472 may also qualify, even where no tax was owed

If you’re unsure whether your specific situation qualifies, that’s worth looking into before the deadline passes.

What you could get back

The refund isn’t limited to the penalty amount itself. If your claim is approved, you may also recover interest that has accrued since the penalty was originally assessed.

• The penalty amount: The full sum charged for late filing or late payment
• Accrued interest: Interest calculated from the date the penalty was assessed — for 2020 penalties, the estimated compounded rate is approximately 19%

That means the actual refund could exceed what you originally paid, depending on when the penalties were assessed and how much time has passed since.

The deadline to claim

IRS rules allow three years from the original filing date to submit a refund claim. For COVID-era penalties, that window closes on July 10, 2026 — and there are no extensions.

Once that date passes, eligible claims may become permanently unrecoverable, regardless of their validity. If you were assessed penalties during the covered period and haven’t looked into this yet, now is the time to do it.

The bottom line

Most people who paid these penalties did exactly what you’re supposed to do when the IRS sends a notice — they paid it and moved on. There was no reason to question it at the time.

Now there is. Two courts have looked at the same set of facts and reached the same conclusion. The refund window is open, the eligibility pool is broad, and the process starts with a single question:

“Did you pay a penalty during the covered period?”

If the answer is yes, it’s worth finding out what you’re owed.