Court ruling could result in millions of dollars in IRS coronavirus tax refunds
A federal court ruling has brought back the issue of COVID-19-era taxes and could leave some Americans owed refunds.
Tens of millions of Americans may not be aware that they may have to pay IRS refunds from the COVID-19 era, so the independent Taxpayer Advocate (NTA) is sounding the alarm to remind them that the filing deadline is fast approaching.
“Many of the taxpayers affected by this issue are low- or moderate-income,” NTA said in a blog post. “These taxpayers are less likely to have professional representation and less likely to learn about complex legal developments such as this one. As a result, they face a greater risk of missing out on the opportunity to claim the refund they would otherwise receive.”
The potential for refunds or penalty reductions stems from the court’s decision in Kwon v. United States, which interprets the tax law to require that once a federally declared disaster takes effect, Section 7508A(d) of the Tax Code requires the applicable tax deadline to be extended by 60 days in addition to the disaster period. The court ruled that the public health emergency caused by the novel coronavirus infection from January 20, 2020 to May 11, 2023 falls under this provision. Adding 60 days will result in a new tax deadline of July 10, 2023 for returns for tax years 2019, 2020, 2021, and 2022.
If the taxes were not paid, the IRS likely would not have had the right to impose penalties or interest during that period, tax attorneys said. Therefore, if you are charged fines or fees, you may be required to pay them back.
The IRS disagrees with the ruling, and the Justice Department will likely appeal, but until it does, taxpayers must apply to preserve their refunds, lawyers said.
“For taxpayers dealing with financial pressures, these amounts can make a big difference,” the Internal Revenue Service said. “However, most taxpayers have until July 10, 2026 to take action to request refunds.”
If this ruling is affirmed, what will taxpayers receive?
According to the NTA, you may have a tax liability if:
- Penalties for failure to timely file a return, fail to pay taxes, or fail to make estimated tax payments.
- Interest begins accruing sooner than it should or does not accrue at all. and
- Overpaid interest for the 2020-2023 disaster period.
“Some practitioners believe that even if the underlying liability arose before the disaster period began, interest or penalties may not have been payable during that period,” the IRS said. “Again, the IRS disagrees,” and taxpayers may have to wait for a final answer. However, once again, taxpayers must claim by July 10 to maintain their right to a potential refund.
Who is affected?
Experts say a wide range of taxpayers may be entitled to refunds.
“The affected taxpayers represent a wide range of citizens, including individuals, small and medium-sized businesses, large corporations, estates and trusts,” the NTA said. “This issue affects taxpayers with obligations related to income, employment, inheritance, gift, and excise taxes. It may also affect taxpayers who file late international information returns, which can result in significant penalties even if no tax is owed.”
How do I know if I owe a refund?
John Wasser, a partner at Fox Rothschild who specializes in tax issues, said taxpayers should check their tax records to see if the IRS has assessed penalties or interest during the tax filing suspension. You can do this by asking a tax professional or reviewing your IRS tax return.
IRS tax account records show tax information for each year, including filing status, taxable income, and adjustments made after the original return was processed. It also displays the dates on which payments, penalties, and interest were made or assessed.
According to the IRS, tax account records can be viewed, printed, and downloaded online by registering using a personal online account, or by mail. Americans can order by mail through the IRS website or by calling the automated telephone transcription service at 800-908-9946. Arrives within 5-10 calendar days.
What should taxpayers do to protect their right to a refund?
Wasser said a tax professional can file a claim on a taxpayer’s behalf, or a taxpayer can use the information on their tax return to file a claim using the Refund and Reduction Claim form, also known as IRS Form 843.
Lawyers say taxpayers should clearly indicate on the form that they are claiming protection under Section 7508A(d) and Kwon v. United States regarding the COVID-19 disaster period.
“You’re basically saying to the IRS, ‘I have a refund request, please hold on to it for now,'” Wasser said. Once all litigation is complete and the IRS is required to issue a refund, you have retained the right to claim your rights.
Currently, refund claims can only be filed on paper, which is “time-consuming, difficult to access, and difficult to track. The IRS does not provide immediate confirmation that a refund claim has been received, so taxpayers are often advised to send their refund claim by certified mail, which provides proof of timely filing in case it is lost or misplaced,” the NTA said.
Because there are potentially tens of millions of claims, the IRS is urging the IRS to “immediately develop and immediately implement a means for taxpayers to submit claims electronically, eliminating the need for the IRS and taxpayers to use paper Form 843s that clog the system.”
NTA also urges the IRS to publicize the availability of refunds, extend the deadline for taxpayers to file refund claims by an additional six months, and consider providing systemic relief to all eligible taxpayers so that they do not have to file refund claims at all.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
