Paid IRS Penalties During COVID? You May Claim a Refund in 2026 — Here’s How

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If you paid IRS penalties on a tax filing between January 2020 and July 2023, you may be eligible to get that money back, along with the interest that has accrued on it. Two independent federal courts have ruled that the IRS lacked the legal authority to assess those penalties in the first place. The window to file a claim is open, but it closes permanently on July 10, 2026.

This guide covers everything you need to know: what happened, who may qualify, how to file, and what to expect after you do.

What happened with IRS penalties during COVID

In January 2020, the federal government declared COVID-19 a nationwide disaster under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. Under this declaration, tax filing and payment deadlines were legally suspended for affected taxpayers, automatically, with no application required.

The IRS’s automated penalty systems, however, continued running as normal. Late-filing and late-payment penalties were assessed throughout the disaster declaration period, as though the suspension had never taken place. 

Millions of taxpayers received penalty notices, paid what they were told they owed, and moved on, with no reason to believe those charges were not legitimate.

The two court rulings that changed everything

Two independent federal courts examined whether the IRS had the legal authority to assess those penalties during an active disaster declaration. Both reached the same conclusion.

Abdo v. Commissioner (2024)

The U.S. Tax Court ruled that the IRS lacked the legal authority to assess late-filing and late-payment penalties during the COVID disaster declaration period. The court found that the legal suspension of deadlines under the Stafford Act precluded the IRS from issuing those penalties during the covered period.

Kwong v. United States (2025)

A separate federal court independently reached the same conclusion the following year, confirming that the IRS exceeded its authority by continuing to penalize taxpayers during a period when deadlines were legally suspended.

The fact that two courts arrived at this ruling independently — without coordination — significantly strengthens the legal foundation for taxpayer refund claims.

What the rulings mean for taxpayers

The rulings established that penalties assessed during the COVID disaster declaration period may not have had a legal basis. Two important points follow from this:

• Refunds are not automatic. The IRS is not proactively reaching out to affected taxpayers or reversing charges on its own.
  
• A formal claim must be filed. The prescribed form for this is Form 843, Claim for Refund and Request for Abatement.

The IRS has already refunded $1.2 billion to taxpayers who filed claims tied to this issue. Many more likely qualify but have not yet filed, either because they were unaware of the rulings, assumed the penalty was final, or did not realize a claim was still possible.

Who may be eligible

Eligibility is broader than most taxpayers expect. These rulings are not limited to small businesses or complex returns.

You may be eligible if:

• You were assessed a late-filing or late-payment penalty on a federal return between January 20, 2020 and July 10, 2023
  
• You paid that penalty in full or in part
  
• You have not already received a full refund or abatement of those penalties

Eligible filer types include:

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

You may not be eligible if:

• Your penalties were assessed outside the January 20, 2020 to July 10, 2023 window
  
• You have already received a full refund or abatement of the penalties in question
  
• Your penalties were assessed for reasons unrelated to late filing or late payment

What can be refunded

A successful claim may recover more than just the original penalty amount.

• The penalty itself: The full amount assessed for late filing or late payment during the covered period.
  
• Interest on the penalty: Interest accrues from the date the penalty was originally assessed. For penalties dating to 2020, this interest can amount to approximately 19% when compounded over the period. This means your total potential refund could be noticeably higher than what you originally paid.

Understanding Form 843

Form 843, Claim for Refund and Request for Abatement, is the official IRS form for requesting a refund of penalties or interest assessed in error or without legal authority.

• It cannot be e-filed. It must be manually prepared, signed, and mailed to the IRS via certified post.
  
• A separate Form 843 is generally required for each tax year in which penalties were assessed.
  
• The form requires specific information, including the tax period, penalty type, amount claimed, and the legal basis for the refund request.

What matters for the deadline is the postmark date, not the date the IRS receives the form.

How to file a COVID penalty refund claim in 2026

Filing a COVID-era penalty refund claim requires submitting Form 843 to the IRS. The process involves obtaining your IRS transcripts, preparing the form accurately, and mailing it via certified post.

There are two ways to approach this:

File on your own

If you prefer to handle the process independently:

• Obtain your IRS transcripts to identify penalties assessed during the covered period
  
• Download and complete Form 843 for each applicable tax year, referencing the Kwong and Abdo rulings in your explanation
  
• Sign and mail the completed form to the IRS service center listed in the form’s instructions via USPS Certified Mail before July 10, 2026
  
• Retain your tracking number as proof of timely filing

File through PenaltyBack via TaxBandits

TaxBandits has partnered with PenaltyBack, an IRS-authorized claim service by TaxNow, to simplify the process for eligible taxpayers. Rather than navigating the paperwork yourself, PenaltyBack handles the claim from start to finish.

• Check your eligibility at no cost through TaxBandits
  
• Authorize PenaltyBack to retrieve your IRS transcripts directly via Form 8821, a view-only authorization that allows no changes to your account
  
• Review your estimated refund, calculated by PenaltyBack based on your transcript data
  
• Review and sign your Form 843, prepared by PenaltyBack based on your records
  
• PenaltyBack mails your claim to the IRS via USPS Certified Mail and provides you with a tracking number

There is no upfront cost. PenaltyBack’s fee applies only upon successful refund recovery.

What happens after you submit a claim

Once your Form 843 has been received by the IRS, here is what to expect.

• Claim placed in holding status: The IRS places COVID-era penalty refund claims in a suspense status while related federal court appeals are ongoing. No further action is required from you.
  
• IRS review: Once the appellate process provides further direction, the IRS will process claims and issue refunds where approved.
  
• Refund issuance: If your claim is approved, the refund is issued directly to you, either as a check or as a credit applied to your IRS account.
  
• If your claim is denied: The IRS may issue a notice of claim disallowance. You generally have 30 days to appeal or file suit in federal court.

Frequently asked questions

1. Can I file Form 843 if I already have a payment plan or owe other taxes?
   Yes. Having an existing payment plan or outstanding tax balance does not disqualify you from filing a Form 843 claim for COVID-era penalties.
   
2. Do I need my original tax returns to file?
   Not necessarily. Your IRS transcripts contain the information needed to identify applicable penalties and calculate your potential refund. These can be retrieved directly from the IRS.
   
3. Do I need to file a separate Form 843 for each tax year?
   Generally, yes. A separate Form 843 is required for each tax year in which penalties were assessed.
   
4. What if I already received some penalty relief?
   If you received partial relief, for example, through IRS Notice 2022-36, you may still be eligible for a refund of remaining penalties not covered by that relief. A transcript review will clarify your specific situation.
   
5. Is a refund guaranteed?
   No. Eligibility depends on your specific tax history and the penalties assessed on your account. The IRS is expected to appeal the Kwong ruling, and the final outcome is still pending. Filing a claim preserves your right to a refund if the ruling holds up.

Checking your eligibility is free and takes only a few steps. If you qualify, PenaltyBack handles the rest.