Understanding Kwong Refund Recovery and Your Potential Savings

What Is Kwong, and Why Should You Care?

In early 2023, the U.S. Court of Federal Claims issued a ruling in Kwong v. United States that has significant implications for anyone who filed taxes during COVID-19 and faced penalties or interest charges. The court determined that due to the federal disaster declaration, the IRS incorrectly applied filing and payment deadlines for certain years, making penalties and interest charged during the pandemic relief period potentially refundable.

The Kwong decision has been interpreted by some practitioners as creating a potential basis to request abatement or refund of certain penalties and interest. The IRS has not broadly adopted this interpretation, and eligibility depends on individual facts and the outcome of ongoing litigation.

If you filed tax returns for 2019, 2020, 2021, or 2022 and paid penalties and interest on those returns, this opportunity could put money back in your pocket—but there’s a time-sensitive deadline you need to know about.

The Background: What Kwong Really Means

The case centers on a principle called “disaster relief.” When President Trump declared COVID-19 a federal disaster on March 1, 2020, a specific tax code section (IRC 7508A) came into play. This code allows the IRS to extend filing and payment deadlines during declared disasters.

Here’s the key issue: The court found that under the historical language of 7508A, the deadline for tax years affected by the disaster wasn’t the typical April 15th filing date—it was actually 60 days after the Department of Health and Human Services declared the COVID emergency over (May 11, 2023). That means the effective due date became July 10, 2023 for returns filed for 2019, 2020, 2021, and 2022.

The IRS had been charging penalties and interest based on the original April/October filing dates, not this extended date. Under Kwong, those penalties and interest—charged before July 10, 2023—are now considered improper and subject to abatement (cancellation).

Who Is Eligible?

Not every taxpayer qualifies. To be eligible for Kwong relief, you must meet these criteria:

• Tax years affected: 2019, 2020, 2021, or 2022
• You owed money: Your return showed a balance due
• You didn’t pay by the original deadline: The IRS charged you for late payment
• Penalties and interest were assessed: Failure-to-file, failure-to-pay, or failure-to-make-estimated-tax penalties (or combinations thereof) appear on your IRS account

Additionally, the penalties and interest must have accrued before July 10, 2023 to qualify for relief under this ruling.

What Penalties and Interest Can Be Abated?

The Kwong ruling covers several penalty types:

• Failure-to-File Penalties (5% per month, up to 25% of unpaid tax)
• Failure-to-Pay Penalties (0.5% per month, up to 25%, or 1% if placed in an installment agreement)
• Failure-to-Make-Estimated-Tax Penalties (penalties for not paying quarterly estimates)
• Late K-1 Penalties (penalties from late partnership or S-Corp distributions)
• Late Information Return Filing Penalties (penalties from late W-2s, 1099s, etc.)
• Interest accrued on unpaid balances before July 10, 2023

In many cases, the interest alone represents a substantial refund, since interest compounds monthly. For example, a client with $50,000 in unpaid tax from 2021 could owe several thousand dollars in interest alone by 2023.

Important: Some Relief May Already Be Applied

Before we calculate a Kwong claim for you, it’s critical to understand that the IRS has already applied certain automatic relief. Specifically:

• Failure-to-File penalties for 2019 and 2020 were automatically abated if you filed by September 30, 2022
• Failure-to-Pay penalties for 2020 and 2021 were automatically abated for individuals with less than $100,000 in assessed penalties (as of December 2023)

This means your account may already reflect some relief. Our role is to identify what relief has already been applied and calculate what additional relief you can claim under Kwong—the difference is often substantial.

How Much Could Your Refund Be?

There’s no one-size-fits-all answer, but here’s what the calculation involves:

1. We pull your IRS account transcripts for the relevant tax years
2. We identify all penalties and interest charged before July 10, 2023
3. We subtract any penalties/interest that have already been reversed or automatically relieved
4. We calculate what you would owe if the July 10, 2023 due date had been applied from the beginning (using interest rates from the COVID period)
5. The difference between what you currently owe and what you should owe is your refund

For many clients, this ranges from $500 to $5,000+, depending on the amount of unpaid tax and how long it remained outstanding.

The Process: How We File Your Claim

Filing a Kwong claim is not a simple checkbox exercise. It requires precision and documentation. Here’s what the process involves:

Step 1: Authorization

We need your written permission to access your IRS records. This is done via Form 8821 (Tax Information Authorization) or Form 2848 (Power of Attorney). These forms allow us to obtain your account transcripts directly from the IRS.

Step 2: Obtaining Your Records

Once authorized, we request your IRS account transcripts for the applicable tax years. These transcripts show every transaction on your account: the original assessments, all penalties, all interest, all payments, and any prior abatements.

Step 3: Analysis

We carefully review your transcripts to identify:

• Which penalties were assessed and when
• How much interest accrued before July 10, 2023
• What automatic relief (if any) has already been applied
• Whether you made any payments that might affect the calculation

Step 4: Calculation

Using specialized software and interest rate tables for the COVID period, we calculate the exact amount of penalties and interest that should be abated. This is where precision matters—the IRS will scrutinize our calculation.

Step 5: Preparing Form 843

We prepare Form 843 (Claim for Refund and Request for Abatement), clearly stating that the claim is based on the Kwong court decision. We reference the specific penalty codes, calculate the abatement amount, and explain the legal basis for the claim.

Step 6: Submission

Form 843 must be mailed (not e-filed) to the correct IRS service center, typically by certified mail, to preserve the filing date. We handle this and maintain proof of delivery.

The Critical Deadline: July 10, 2026

Protective refund claims are generally subject to statutory filing deadlines. You have until July 10, 2026 to file a protective claim for Kwong relief. After that date, your right to request these refunds expires permanently.

This deadline exists because, technically, you have three years from the due date of the return (July 10, 2023) to file a refund claim. Three years from July 10, 2023 is July 10, 2026.

Why does this matter? Even though the IRS has appealed the Kwong decision, only taxpayers who file claims will be eligible for relief if the court’s decision is upheld. Waiting to see how the appeal turns out is risky—if you miss the July 10, 2026 deadline and the court rules in your favor, you won’t be able to claim the refund.

The IRS Appeal: What It Means for You

In May 2026, the IRS appealed the Kwong decision to the U.S. Court of Appeals. This creates uncertainty about whether the ruling will ultimately stand.

However, this does not reduce the urgency of filing your claim. Here’s why:

• The appeal will likely take 1–2+ years to resolve, potentially extending past the July 10, 2026 deadline
• Filing a protective claim now preserves your right to the refund regardless of the appeal outcome
• If the IRS wins the appeal, your claim will be denied, but you’ll have preserved your rights up to that point
• If the court affirms the Kwong decision, you’ll already be in the queue for your refund

The cost is minimal (our service fee), and the upside is potentially significant. There is no guarantee the decision will ultimately be upheld on appeal.

What Makes This Valuable: Time Sensitivity and Complexity

Preparing Kwong claims is not a fast or simple process. Here’s why:

1. Accuracy is critical: The IRS will scrutinize penalty and interest calculations. A miscalculation undermines the entire claim.
2. Record gathering takes time: Obtaining IRS transcripts and organizing them correctly requires coordination.
3. Calculation is complex: Different penalties have different rates, different start dates, and different maximum amounts. Interest compounds monthly and varies by quarter.
4. Documentation matters: We attach copies of your account transcript, our calculations, and a written explanation of the legal basis for the claim.

This is not something to rush or DIY. The difference between a well-prepared claim that gets approved and a sloppy one that gets rejected is the difference between a refund and nothing.

How We Can Help

At Molen & Associates, we have the expertise to:

• Quickly identify whether you’re likely a candidate for Kwong relief based on your 2019–2022 returns
• Obtain your IRS account transcripts and analyze them for eligible penalties and interest
• Calculate your potential refund accurately using current interest rate tables and IRS penalty codes
• Prepare and file Form 843 with proper documentation and supporting schedules
• Correspond with the IRS on your behalf regarding your claim
• Provide updates as the claim moves through the IRS review process

Pricing Considerations

Kwong claims are not a flat-fee service because the complexity varies widely based on:

• The number of years involved
• The number of different penalty types
• Whether you have multiple K-1s or information returns involved
• The calculation complexity (some taxpayers have multiple assessed amounts; others have one)

We typically structure Kwong engagements using one of three models:

Flat Fee: A fixed cost for the entire claim preparation and filing. Works well for straightforward cases with one or two years and simple penalty scenarios. Often ranges from $1,000–$3,500 depending on complexity.

Hourly: Billed at standard rates for the time spent analyzing records, calculating the claim, and preparing Form 843. Useful when the scope is uncertain or the case is highly complex.

Each engagement includes a clear written proposal outlining the scope, timeline, and fees before we begin any work.

Next Steps

If you filed returns for 2019–2022 and were assessed penalties or interest, here’s what to do:

1. Reach out to us: Contact Molen & Associates and let us know you’re interested in exploring Kwong relief. We’ll ask a few quick questions about your situation (years filed, rough amount of penalties, whether you’ve had collection activity).
2. We’ll do a quick assessment: Based on your initial information, we’ll determine whether a Kwong claim is likely to benefit you. We’re honest—if the numbers are small or if the automatic relief already applies, we’ll tell you that too.
3. We’ll provide a proposal: If a claim makes sense, we’ll send you a detailed proposal outlining the scope of work, our estimated refund range (based on preliminary calculations), the service fee, and the timeline.
4. You decide: Review the proposal, ask any questions, and let us know if you want to move forward. You’re in control.
5. We handle the rest: Once we have your authorization (Form 8821), we obtain your transcripts, run the calculations, prepare Form 843, and file it before the July 10, 2026 deadline.

The Bottom Line

Kwong is a real opportunity with a real deadline. Thousands of taxpayers across the country have unpaid penalties and interest from 2019–2022 that may now be refundable. Most don’t know about it. The IRS isn’t proactively reaching out to tell people they can get money back.

This is exactly the kind of issue that good tax professionals exist to solve. We know how to calculate these claims, we know the filing requirements, and we know the deadline.

If you fit the profile—you filed during the pandemic, owed money, and were charged penalties—don’t wait. The July 10, 2026 deadline will arrive faster than you think.

Questions? Contact us today to discuss whether Kwong relief applies to your situation.