During COVID, Potential Refund Opportunity for Interest and Penal

Some tax stories begin with coffee, spreadsheets, and a tiny feeling of dread. This one begins with COVID-19, IRS penalties, interest charges, and a surprisingly important question: did some taxpayers pay money they may be able to get back?

The phrase “During COVID, Potential Refund Opportunity for Interest and Penal” may sound like it escaped from a tax office printer during a thunderstorm, but the topic is very real. Many individuals, small businesses, estates, trusts, and organizations were assessed IRS penalties and interest during the pandemic years. Some paid those charges simply to stop the notices, reduce stress, or keep their accounts clean. Now, because of IRS relief programs and recent legal developments, certain taxpayers may have a chance to request a refund or abatement.

This does not mean everyone who had a bad tax year during COVID automatically gets a check. The IRS is not sending confetti cannons through the mail. However, taxpayers who were charged failure-to-file penalties, failure-to-pay penalties, certain information return penalties, or related interest during the COVID disaster period may want to review their records carefully. For some, Form 843 could become the most interesting two-page form they have ever met.

What Is the COVID-Era Refund Opportunity?

The potential refund opportunity centers on penalties and interest assessed during the federal COVID-19 disaster period. The basic idea is that certain tax deadlines may have been postponed under disaster-relief rules, and if a deadline was legally postponed, then a taxpayer may argue that penalties and interest tied to missing that deadline should not have been charged in the first place.

That is the plain-English version. The tax-law version involves Internal Revenue Code Section 7508A, disaster declarations, refund statutes, protective claims, and court decisions such as Kwong v. United States. If your eyes just tried to leave the room, do not worry. The practical question is much simpler: were you charged IRS penalties or interest during the COVID years, and should you file a claim to preserve your right to a possible refund?

The National Taxpayer Advocate has warned that many taxpayers may need to act by July 10, 2026, to protect potential claims. That date matters because refund claims generally have strict time limits. Miss the deadline, and even a strong argument can become about as useful as a coupon that expired in 2019.

How COVID Changed the Tax Penalty Landscape

During the pandemic, millions of taxpayers faced real-world disruptions. Offices closed. Tax records were delayed. Mail service slowed. People got sick, cared for family members, lost jobs, moved homes, or dealt with business shutdowns. For small-business owners, the “home office” sometimes became a kitchen table, a storage room, and a panic bunker all at once.

The IRS also struggled with pandemic backlogs. Paper returns piled up, phone service became difficult, and many taxpayers waited months for account updates. In response, the IRS provided several rounds of relief. One major program offered broad penalty relief for certain late-filed 2019 and 2020 returns. Another relief effort covered certain failure-to-pay penalties for 2020 and 2021 taxpayers who met specific balance and notice-related conditions.

Those programs were helpful, but they did not cover every taxpayer, every penalty, or every year. That is why the newer refund discussion matters. It may apply to situations not fully fixed by earlier automatic relief.

The Difference Between a Refund and an Abatement

A refund means you already paid the penalty or interest and are asking the IRS to give the money back. An abatement means the IRS assessed the charge, but you have not paid it yet, and you are asking the IRS to remove it from your account.

For example, suppose a taxpayer filed a 2020 return late and paid a failure-to-file penalty plus interest in 2022. If that taxpayer now believes the charge was improper under COVID disaster-relief rules, the taxpayer may seek a refund. On the other hand, if the same taxpayer still owes the penalty, the request would be for abatement.

In both cases, the taxpayer needs records. This is not the time to rely on memory, vibes, or a shoebox labeled “tax stuff maybe.” IRS account transcripts, notices, payment confirmations, and filed returns can help show what was charged, when it was charged, and whether the charge may fall inside the COVID-era opportunity.

Which Penalties Might Be Involved?

The most commonly discussed penalties include failure-to-file penalties, failure-to-pay penalties, estimated tax penalties, and certain information return penalties. Related interest may also be part of the conversation, especially where the interest was connected to a penalty or a delayed payment deadline.

The failure-to-file penalty often gets attention because it can be expensive. In general, it is calculated as a percentage of unpaid tax for each month or part of a month that a return is late, up to a maximum limit. The failure-to-pay penalty is usually smaller each month, but it can still grow over time. Add interest, and the final balance can start acting like it discovered compound growth at a motivational seminar.

Not every penalty qualifies for every type of relief. Some penalties are excluded from first-time abatement. Some require reasonable cause. Some may require a specific legal argument. That is why a careful review matters before filing a claim.

Why Form 843 Matters

Form 843, Claim for Refund and Request for Abatement, is commonly used to request refunds or abatements of certain taxes, penalties, interest, fees, and additions to tax. For many COVID-era penalty and interest claims, Form 843 is the form taxpayers and tax professionals are discussing most often.

A strong Form 843 claim should generally identify the taxpayer, tax period, type of tax, type of penalty, amount requested, and the reason the refund or abatement is being claimed. If the request is connected to COVID disaster-relief arguments, many professionals recommend clearly labeling the filing as a protective refund claim. A protective claim is designed to preserve the taxpayer’s rights while legal uncertainty remains unresolved.

Think of a protective claim like saving your place in line. It does not guarantee you will receive money, but it may prevent the IRS from later saying, “Nice argument, but you arrived after the doors closed.”

Who Should Review Their Tax Records?

Taxpayers should consider reviewing their records if they filed or paid late during the COVID years, received IRS notices for penalties or interest, paid a balance that included penalty charges, or had a business or individual tax account affected by pandemic delays.

Individuals may want to check tax years 2019, 2020, 2021, and 2022, depending on when returns were due, filed, processed, and paid. Businesses should also review entity returns, payroll-related filings, information returns, and tax notices. Tax-exempt organizations that filed late or paid penalties may also have reason to examine their accounts.

Account transcripts can be especially useful because they show IRS account activity, including assessments, payments, penalties, interest, credits, and refunds. A transcript is not exactly beach reading, but it can reveal whether the IRS charged amounts that deserve a second look.

A Simple Example

Imagine a small-business owner named Mark. During COVID, his restaurant operated with reduced hours, staffing issues, and supply problems. He filed a business return late and later received an IRS notice showing tax, penalties, and interest. Exhausted and eager to move on, he paid the balance.

In 2026, Mark’s tax preparer reviews his IRS transcript and notices that part of the penalty and interest was assessed during the COVID disaster period. The preparer determines that Mark may have a reasonable basis to file Form 843 as a protective claim. Mark files before the deadline, includes supporting details, and waits for the IRS or courts to clarify how the rule applies.

Mark is not guaranteed a refund. But by filing a timely claim, he may preserve the possibility. Without the claim, he may lose the opportunity entirely.

Another Example for Individuals

Now consider Angela, an individual taxpayer who filed her 2020 return late after dealing with illness, remote work chaos, and missing tax documents. She eventually paid her tax bill, including a failure-to-file penalty and related interest. At the time, she assumed there was nothing she could do. After all, the IRS notice looked official, and official notices tend to have the emotional warmth of a parking ticket.

Later, Angela learns about COVID-era penalty relief and potential refund claims. She downloads her account transcript, identifies the penalty codes, reviews the dates, and speaks with a qualified tax professional. If the facts support it, she may file Form 843 to request a refund or submit a protective claim before the deadline.

Earlier IRS Relief vs. the Newer Protective Claim Issue

It is important not to confuse earlier IRS automatic relief with the newer protective claim discussion. Earlier IRS relief programs, such as penalty relief for certain 2019 and 2020 late-filed returns, were administrative actions. Taxpayers who qualified often received automatic relief or refunds without filing a special request.

The newer issue is different. It is tied to legal arguments about whether certain deadlines were postponed during the COVID disaster period and whether penalties and interest were improperly assessed. Because the issue is still developing, taxpayers may need to file a claim themselves instead of waiting for the IRS to automatically act.

In other words, earlier relief was like the IRS opening a door for specific groups. The current opportunity may require taxpayers to knock before the deadline.

Why the July 10, 2026 Date Is Getting Attention

Refund claims are controlled by strict limitation periods. In many cases, taxpayers have only a certain number of years from the time a return was filed or a tax was paid to request a refund. The National Taxpayer Advocate has highlighted July 10, 2026, as a key date for many potential COVID-related penalty and interest claims.

Taxpayers should not assume that every claim has the same deadline. Different facts can create different limitation periods. For example, the date of payment, the tax year, the type of return, and the kind of charge may all matter. Still, July 10, 2026, has become a major planning date because waiting beyond it could put many claims at risk.

What Documents Should You Gather?

Before filing anything, gather your IRS notices, account transcripts, payment records, filed returns, extension confirmations, and correspondence with the IRS. If a professional prepared your return, ask for a copy of the complete filing package. If your records are scattered across email, cloud storage, and a folder named “final final taxes,” now is the time to organize them.

Look for penalty descriptions, transaction codes, assessment dates, payment dates, and interest amounts. The goal is to connect the dots between the charge and the COVID-era period. A vague request is easier for the IRS to deny or delay. A specific request with dates, amounts, tax periods, and a clear explanation is stronger.

Should You File Yourself or Hire a Tax Professional?

Some taxpayers may be comfortable filing Form 843 themselves, especially if the amount is small and the facts are simple. Others should consider hiring a CPA, enrolled agent, or tax attorney. Professional help may be especially valuable when the refund amount is large, multiple years are involved, business returns are affected, international information forms are involved, or the taxpayer has an existing IRS dispute.

The cost-benefit analysis matters. Spending hundreds or thousands of dollars to chase a tiny refund may not make sense. But paying for professional review could be wise if the possible refund is significant. As with most tax decisions, the best answer is not “always hire someone” or “always do it yourself.” The best answer is “know what is at stake before you start mailing forms into the federal tax galaxy.”

Common Mistakes to Avoid

Waiting Too Long

The biggest mistake is waiting until the deadline has passed. Refund rights can expire even when the taxpayer has a good argument. Tax deadlines are not known for their sense of humor.

Filing Without Records

A claim should be supported by actual account information. Filing based only on a news headline may create confusion, delays, or denial.

Requesting the Wrong Amount

Do not guess. Identify the penalty and interest amounts from transcripts and notices. If you are not sure how to calculate the claim, get help.

Assuming Approval Is Automatic

This is a potential opportunity, not a guaranteed refund. The IRS may challenge claims, legal interpretations may evolve, and individual facts matter.

How This Affects Small Businesses

Small businesses may have the most complicated records because one company can have income tax returns, payroll tax forms, information returns, entity-level filings, and state tax issues. A business that was scrambling to survive during COVID may have filed late, paid late, or received multiple notices over several years.

For business owners, the first step is to build a timeline. List each tax period, original due date, filing date, payment date, IRS notice date, penalty assessment, and interest charge. Then determine whether the charges fall within the COVID-related period being discussed. This timeline can help a tax professional quickly decide whether a protective claim is worth filing.

How This Affects Individual Taxpayers

Individual taxpayers should not ignore the issue just because they are not business owners. Many individuals filed late during COVID. Some missed estimated tax payments. Others entered payment plans, paid notices, or saw refunds reduced because the IRS applied them to old balances that included penalties and interest.

If you received IRS notices for 2019 through 2022, review them. If you paid penalties or interest between 2020 and 2023, review your transcripts. If your refund was smaller than expected because the IRS offset it against an older balance, check whether that balance included penalty or interest charges that might be affected.

Experience-Based Insights: What Taxpayers Learned During COVID

COVID taught taxpayers a lesson that was not exactly printed in the IRS instruction booklet: recordkeeping is not glamorous, but it can save real money. Many people who struggled with tax notices during the pandemic did not have a tax problem at first. They had a document problem. They could not find proof of payment, did not know whether a return was accepted, or had no copy of the notice that created the balance. Once penalties and interest began to pile up, the missing paperwork became expensive.

One practical experience from the pandemic years is that IRS transcripts are essential. Taxpayers often remember mailing a return, paying a balance, or calling the IRS, but the account transcript shows what the IRS system actually recorded. That difference matters. If the transcript shows a late-filing penalty assessed during the COVID disaster period, the taxpayer has a starting point for a refund review. Without the transcript, the taxpayer is basically trying to solve a puzzle while wearing oven mitts.

Another lesson is that IRS notices should be opened immediately, even when they look terrifying. Many people avoided notices because they felt overwhelmed. That reaction is human, but it can make the problem worse. A notice may show a deadline, an appeal right, a penalty code, or an amount that needs to be challenged. During COVID, when processing delays were common, some taxpayers received confusing notices that did not match payments or filings already submitted. The people who kept copies and responded clearly were usually in a better position than those who waited.

Taxpayers also learned that “I paid it just to make it go away” is understandable, but not always the end of the story. Paying a penalty may stop collection pressure, but it does not necessarily prevent a later refund claim if the law allows one and the deadline remains open. That is why people who paid COVID-era penalties should not automatically assume the money is gone forever. A paid penalty may be exactly the kind of item worth reviewing.

Small-business owners had their own hard-earned lessons. Many were focused on payroll, rent, supply shortages, customer restrictions, and emergency loans. Tax deadlines became one more spinning plate in a room full of spinning plates. For those businesses, the best approach now is not blame. It is reconstruction. Build the timeline. Pull transcripts. Compare bank records with IRS records. Identify every penalty and interest charge. Then decide whether the amount justifies a protective claim.

Finally, COVID reminded taxpayers that tax relief does not always arrive automatically. Sometimes the IRS grants broad relief. Sometimes Congress changes the rules. Sometimes courts interpret the law in a way that creates new opportunities. And sometimes taxpayers must raise their hands before the clock runs out. The smartest move is to review the facts early, file carefully if appropriate, and avoid waiting until the deadline is so close that the printer jams out of pure drama.

Final Thoughts

The potential COVID-era refund opportunity for interest and penalties is important because it may affect taxpayers who already paid money they did not have to pay. It may also help taxpayers who still owe penalties or interest connected to pandemic-period deadlines. However, this is not a universal refund program, and it should not be treated like free money hiding under the couch cushions.

The smart approach is simple: review your IRS transcripts, identify penalties and interest assessed during the relevant period, gather supporting records, and consider filing Form 843 or a protective claim before the applicable deadline. If the numbers are meaningful or the facts are complicated, talk to a qualified tax professional.

During COVID, taxpayers dealt with uncertainty, delays, and financial stress. If some penalties and interest were assessed improperly, taxpayers deserve a fair chance to ask for correction. The opportunity may be technical, but the principle is refreshingly human: if you paid more than the law required, you should at least check whether you can get it back.