Could Your Business Be Owed an IRS Refund?
What Business Owners Should Know About the Kwong Decision

Most business owners assume that once an IRS penalty is paid, the matter is closed.

A recent federal court decision suggests that may not always be true.

In November 2025, the U.S. Court of Federal Claims issued its decision in Kwong v. United States, a case that has generated significant attention among tax professionals because it may create refund opportunities for certain taxpayers who paid IRS penalties and related interest during the COVID-19 disaster period.



For growth-focused businesses, this development is worth understanding not because every penalty qualifies for a refund, but because some businesses may have an opportunity to recover money that was previously thought to be lost.

At the center of the case is IRC Section 7508A, a provision that allows certain tax deadlines to be postponed during federally declared disasters.

The Court of Federal Claims concluded that the COVID-19 disaster declaration triggered a much broader postponement period than many taxpayers and advisors previously understood. According to the court's interpretation, the relevant postponement period ran from January 20, 2020 through July 10, 2023.

Why does that matter?

Because penalties and interest are often calculated based on filing and payment deadlines.

If the applicable deadline was postponed, some penalties and related interest may have been assessed earlier than they should have been.

The Kwong decision is not about creating new tax benefits. It is about whether certain IRS penalties should have been imposed in the first place.

Which Businesses Should Pay Attention?

This issue may be relevant for businesses that paid IRS penalties connected to deadlines that fell between January 20, 2020 and July 10, 2023.

Potentially affected penalties may include:

• Failure-to-file penalties
• Failure-to-pay penalties
• Certain estimated tax penalties
• Related interest charges
• Certain payroll tax penalties

For many businesses, payroll tax penalties alone can be substantial.

Construction companies, manufacturers, real estate groups, and other growing businesses often experienced operational disruptions during the pandemic years that resulted in filing delays, payment delays, or compliance challenges.



The larger the business, the greater the likelihood that meaningful penalty amounts may be involved.

Why This Matters for Mid-Market Companies

A $500 penalty is annoying.

A $50,000 penalty is worth investigating.

Many mid-market businesses accumulated penalties across multiple tax years, multiple entities, or multiple tax types.

We've seen situations involving:

• Payroll tax penalties
• Corporate return penalties
• Partnership return penalties
• Estimated tax penalties
• Interest that continued to accrue on assessed balances



For organizations with several entities or complex structures, the cumulative impact can become significant.

Even if only a portion of the penalties ultimately qualify for refund treatment, the potential recovery may justify a review.

Important Limitations Business Owners Need to Understand

The Kwong decision does not automatically eliminate every penalty assessed during the COVID years.

There are important limitations.

For example:

• The facts of each case matter.
• The strongest claims generally involve deadlines that fell within the applicable relief period.
• Penalties tied to liabilities that became due before the disaster period may be more difficult to challenge.
• The government continues to dispute aspects of the court's interpretation.



This is one reason many advisors are discussing "protective claims" rather than assuming refunds will automatically be issued.

This is an opportunity worth reviewing, not a guaranteed refund.

Why Timing Matters

One of the most important aspects of this situation is timing.

Several firms and tax controversy specialists have noted that taxpayers may need to act before applicable refund claim periods expire.

Waiting for the litigation process to fully conclude could create a problem if a filing deadline passes first.

That is why many practitioners are encouraging taxpayers to review their accounts now and preserve their rights where appropriate.



For business owners, this is not a "wait and see" issue. It is a "review and determine" issue.

What Information Should You Gather?

If your business paid IRS penalties or related interest connected to federal tax deadlines during the COVID period, gathering documentation now can simplify the review process.

Useful records may include:

• IRS notices
• Account transcripts
• Penalty assessments
• Payment confirmations
• Tax return information
• Payroll tax records



The goal is not to determine eligibility yourself, the goal is to identify whether a review is warranted.

What a Strategic Tax Advisor Should Be Doing Right Now

The most proactive tax firms are not waiting for clients to ask about this issue.

They are reviewing accounts, identifying potential opportunities, and helping businesses understand whether further action makes sense.

This is exactly what year-round tax planning looks like.

Not just preparing returns.

Not just responding to notices.

But actively evaluating developments that may create opportunities to recover cash, reduce risk, or improve future outcomes.



Strategic tax planning includes identifying opportunities after a return has already been filed.

The Bottom Line TL;DR

The Kwong decision may create refund opportunities for certain businesses that paid IRS penalties or related interest connected to tax deadlines during the COVID disaster period.

Not every business will qualify.

Not every claim will succeed.

And the law continues to evolve.

But for companies that experienced penalties between January 20, 2020 and July 10, 2023, the potential upside may justify a closer look.

If you believe your business paid IRS penalties during this period, now may be the right time to review those assessments and determine whether action should be taken before potential refund deadlines expire.

Contact us online for a discussion about your situation, fill out our contact us form and we will get back to you in under 24 hours.