A federal court case that was decided late last year is prompting taxpayers to consider filing for a refund in 2026. The ruling in Kwong v. United States that some tax deadlines should have been on hold for the entire time that the pandemic was considered a federal disaster—plus 60 days—means that the time to file for refund or an abatement may still be open.

The potential extension has opened the door for taxpayers, including individuals and businesses, to recover IRS penalties and interest assessed during the COVID-19 disaster period. For most taxpayers, the deadline to file refund or abatement claims is now July 10, 2026.

Think you might be owed some money? Here’s what you need to know.

Facts of Kwong v. United States

The case was brought by Terry Kwong, an individual taxpayer in California. His case started well before the pandemic. Kwong received advice regarding a loss carry-forward related to a transaction that originated in 2005. Years later, the IRS reduced the amount of the loss, and the subsequent adjustment resulted in the loss being used up in the 2005 and 2006 tax years.

Since Kwong had anticipated that the loss would be sufficient to cover future years' taxes, he did not timely resolve his 2007, 2010, and 2011 tax liabilities (he also did not timely file his 2010 and 2011 federal income tax returns). As a result, he was assessed failure-to-file and failure-to-pay penalties for the 2007, 2010, and 2011 tax years.

Kwong hired a new accountant and filed and paid his 2015 taxes on time. The IRS, however, transferred his entire payment to another tax year (to satisfy the balance due) and assessed significant delinquency penalties.

For the 2016 tax year, the same thing happened. Kwong’s 2016 individual federal income tax return was timely filed, and he paid the tax due. The IRS again transferred the entire payment to another tax year and assessed significant delinquency penalties.

When he discovered what happened, he met with the IRS and arranged to pay his 2007, 2010, 2011, 2015, and 2016 tax liabilities in full. Then, in 2020, Kwong filed for a refund of penalties and interest for those years on the grounds that he acted with reasonable cause and in good faith. The IRS disallowed his claims in September and October........

© Forbes