Did your business pay penalties to the IRS during or shortly following the COVID-19 pandemic? If so, you may now be eligible for a refund on those penalties.
What happened: Recent federal court decisions suggest the IRS may have applied certain COVID-era filing and payment deadlines too narrowly.
Why it matters: Some businesses that paid IRS penalties or interest during the COVID-19 pandemic may now have an opportunity to seek refunds.
The bottom line: Businesses that paid IRS penalties, interest, or related charges between 2020 and 2023 should review their records now. Some refund deadlines may begin expiring as early as July 10, 2026.
In this alert, we will:
- Explain the recent federal court decisions;
- Discuss which businesses may have potential refund claims;
- Identify the types of penalties and interest that may be eligible for refund;
- Highlight important deadlines that may affect your right to seek a refund; and
- Outline the steps businesses can take to preserve and pursue potential claims.
Get more information: If your business received IRS penalty notices, paid significant interest charges, or experienced tax filing or payment issues between 2020 and 2023, we encourage you to contact Lipsitz Green Scime Cambria. We would be pleased to review your circumstances and help you determine whether steps should be taken to preserve potential refund claims.
Recent Court Decisions
Two recent federal tax decisions—Abdo v. Commissioner and Kwong v. United States—have raised significant questions about how the IRS applied tax filing and payment deadlines during the COVID-19 national emergency.
Both courts concluded that federal disaster-relief provisions may have required broader extensions of certain tax deadlines than the IRS previously recognized. If those decisions ultimately remain in effect, some taxpayers may have paid penalties and interest that should never have been assessed.
Although these decisions are being appealed, businesses should not assume they can wait until the litigation concludes. Refund claims remain subject to strict filing deadlines that may expire before the courts issue final decisions.
What Businesses Have a Refund Opportunity?
Your business should consider reviewing its records if it:
- Paid IRS late-filing or late-payment penalties between 2020 and 2023;
- Paid significant IRS interest during that period;
- Filed federal tax returns after their original due dates;
- Paid federal taxes after the original payment deadlines; or
- Entered into an IRS installment agreement or experienced collection activity during the pandemic.
Potential claims are not limited to any particular industry or business structure and may affect corporations, partnerships, LLCs, S corporations, C corporations, professional practices, family-owned businesses, and other entities.
Whether your business qualifies will depend on its particular facts, including the type of tax involved, when the penalties or interest were assessed, and when payments were made.
What Types of Charges May Be Refunded?
Depending on the circumstances, businesses may be able to recover:
- Failure-to-file penalties;
- Failure-to-pay penalties;
- Certain IRS interest charges; and
- Other penalties based on filing or payment deadlines that may have been improperly calculated.
The availability and amount of any refund will depend on the facts of each case and applicable IRS procedures.
Important Dates and Deadlines
Businesses should act promptly because refund claims are governed by statutes of limitation.
In many cases, a refund claim must be filed by the later of:
- Three years after the related tax return was filed; or
- Two years after the tax, penalty, or interest was paid.
- For some taxpayers, important deadlines may begin expiring as early as July 10, 2026.
Waiting for the appeals in these cases to conclude could result in the loss of valuable refund rights.
What To Do Next
Businesses that paid IRS penalties or interest during the COVID-19 period should consider taking the following steps now:
- Review tax returns, IRS notices, and payment records from 2020 through 2023;
- Identify penalties, interest, and other charges paid during that period;
- Obtain IRS account transcripts if records are incomplete;
- Consult with a qualified tax advisor or attorney regarding potential refund opportunities; and
- Consider filing a protective refund claim, where appropriate, to preserve your rights while the litigation continues.
The law in this area continues to evolve, but businesses should not wait until the appellate courts issue final decisions before evaluating their rights.
If your business paid IRS penalties or interest during the COVID-19 pandemic, the attorneys at Lipsitz Green Scime Cambria can review your tax history, evaluate whether a refund opportunity may exist, advise you regarding applicable deadlines, and assist in preserving any available claims.
If you would like to discuss your situation or schedule a consultation, please contact one of our Business & Corporate attorneys.
