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The economic fallout from Covid-19 is still playing out in ways many Americans may not be aware of.
For millions of taxpayers, that includes a potential refund from the IRS, but advocates are urging those eligible to act before the window closes.
The potential refunds stem from a court ruling in the case of Kwong v. United States, in which a judge ruled that a specific tax law applies to the Covid-19 pandemic.
Section 7508A(d) of the tax code states that when the government officially declares a national disaster, certain tax deadlines must automatically be pushed back - both for the duration of the disaster itself and for a further 60 days after it ends.
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The court ruled that the Covid-19 public health emergency, which ran from January 20, 2020 through May 11, 2023, qualified under this provision.
Adding the required 60-day extension pushes the effective tax deadline for the 2019, 2020, 2021, and 2022 tax years to July 10, 2023. If taxes were not technically due until that date, tax lawyers argue the IRS had no legal right to levy penalties and interest before then, meaning anyone charged those fees during that window may be entitled to a refund.
The IRS disagrees with the ruling and the Department of Justice is expected to appeal.
But until a final decision is made, the independent National Taxpayer Advocate (NTA) is advising taxpayers to file a claim in case the ruling is upheld.
According to the NTA, eligible taxpayers includes 'individuals, small businesses, large corporations, estates, and trusts.'
They added: "The issue reaches taxpayers with obligations related to income, employment, estate, gift, and excise taxes."
Even taxpayers who filed 'late international information returns' may be affected.
"Many taxpayers affected by this issue have low and moderate incomes," NTA noted in a blog post. "These taxpayers are less likely to have professional representation and to learn about complex legal developments like this one. As a result, they face a greater risk of missing the opportunity to claim refunds to which they may be entitled."
The first step is to check your tax records to see whether the IRS assessed any penalties or interest during the relevant period, said Jon Wasser, a partner at Fox Rothschild. You can do this by reviewing your IRS tax account transcript, which shows your filing history, taxable income, payments, penalties and interest, along with the dates they were assessed or made.
Transcripts are available online through the IRS Individual Online Account, where they can be viewed, printed, or downloaded. They can also be requested by mail through the IRS website or by calling the automated phone transcript service at 800-908-9946.
Claims can be filed by a tax professional on your behalf, or directly using IRS Form 843. When completing it, lawyers advise specifying that it is a protective claim based on the Kwong v. United States decision regarding Section 7508A(d) and the Covid-19 disaster period.
Filing a protective claim essentially tells the IRS to hold the refund request until the litigation reaches a conclusion.
More importantly, claims can currently only be filed by paper rather than electronically, which means the NTA strongly recommends sending them by certified mail so there is a verifiable record of submission in case anything goes missing.
Depending on your circumstances, eligible taxpayers may be owed a refund or abatement of penalties for failing to file returns on time, failing to pay taxes, or failing to make estimated tax payments.
They may also be owed interest that began accruing earlier than it legally should have, or overpayment interest covering the 2020 to 2023 disaster period.
