Frost Law highlighted that a wide cross-section of taxpayers with IRS penalties or interest could be owed a tax refund or abatement following a court decision related to the pandemic. The affected group ranges from individual taxpayers and small businesses to corporations and partnerships as well as people with international tax requirements or Individual Retirement Accounts (IRAs).
At stake are potentially billions of dollars. While the amounts will vary widely by taxpayer, tax refunds or abatements could be substantial in some cases, particularly for businesses and taxpayers with substantial failure-to-pay penalties. Businesses, taxpayers, and tax professionals should be aware that time is running out to preserve potential refund or abatement claims. Most claims will expire in July.
The issue stems from a significant ruling for taxpayers when the Court of Federal Claims decided in Kwong v. United States that Internal Revenue Code § 7508A(d) required a mandatory suspension of tax deadlines during the pandemic period. This suspension spanned from January 20, 2020, through July 10, 2023.
The court held that the IRS was not permitted to assess interest or penalties for obligations occurring during this specific window tied to COVID-19 disaster declarations. Consequently, many taxpayers may now be eligible to have previously paid penalties refunded or unpaid assessments abated.
Frost Law’s team is available to help taxpayers potentially affected by this development. Taxpayers and tax professionals should check their records to see if they incurred penalties or interest related to these key areas during the 2020-2023 period:
The Kwong ruling primarily impacts penalties tied to the timing of filings and payments. These include:
The Kwong decision also extends to information reporting requirements. If these forms were filed late or not furnished during the period, the following penalties may be abatable:
Partnership/S-Corp Late Filing (I.R.C. §§ 6698 & 6699): Late filing penalties for Partnerships (Form 1065) and S-Corps (Form 1120-S), which are typically calculated on a per-month, per-partner/shareholder basis.
Failure to File/Furnish Information Returns (I.R.C. §§ 6721 & 6722):
International compliance often carries "assessable penalties" that start at $10,000 per violation. The Kwong ruling suggests that deadlines for several high-dollar forms were also pushed to July 2023, raising refund or abatement possibilities for taxpayers affected by these. Affected forms can include:
Form 5471: Reporting for U.S. persons with interests in certain foreign corporations
Form 5472: Reporting for 25% foreign-owned U.S. corporations or foreign corporations in a U.S. trade/business.
Form 3520 / 3520-A: Reporting for foreign trusts and the receipt of large foreign gifts.
Form 8865: Reporting interests in foreign partnerships.
Form 8938: Foreign Financial Assets (FATCA) reporting for specified foreign financial assets.
Finally, the Kwong ruling touches on several specialized excise and compliance areas that could affect penalties for employers under the ACA or those who missed Individual Retirement Account (IRA) Required Minimum Distributions (RMDs):
ACA Employer Shared Responsibility Payments (ESRP): Also known as the "Hammer Penalty" for failing to offer health coverage.
Retirement Account Excise Taxes (I.R.C. § 4974): Penalties incurred for missing Required Minimum Distributions (RMDs).
If taxpayers were assessed penalties or interest between January 2020 and July 2023, they should quickly review records to determine if a refund or abatement claim is appropriate in light of the Kwong ruling. Affected taxpayers should consider filing Form 843, Claim for Refund and Request for Abatement, by July 10, 2026 to protect their rights.
The team at Frost Law is available to help taxpayers, businesses, and tax professionals navigate questions about potential refunds and abatements as well as helping them determine whether filing IRS Form 843 is needed to protect their rights. People can visit askfrost.com, call (410) 497-5947, or email Info@AskFrost.com.
Frost Law is headquartered in the Washington, D.C., metro area. With multiple offices, the firm works with clients across the nation and around the world. Currently, more than 80 Frost employees include skilled attorneys focusing on tax, business, litigation and estates as well as Certified Public Accountants, Certified Financial Planners™, Enrolled Agents and other tax professionals. Frost’s team can help people and businesses on issues including tax planning, tax strategy, tax minimization as well as helping scam victims with tax issues.
Frost Law highlighted that a wide cross-section of taxpayers with IRS penalties or interest could be owed a tax refund or abatement following a court decision related to the pandemic. The affected group ranges from individual taxpayers and small businesses to corporations and partnerships as well as people with international tax requirements or Individual Retirement Accounts (IRAs).
At stake are potentially billions of dollars. While the amounts will vary widely by taxpayer, tax refunds or abatements could be substantial in some cases, particularly for businesses and taxpayers with substantial failure-to-pay penalties. Businesses, taxpayers, and tax professionals should be aware that time is running out to preserve potential refund or abatement claims. Most claims will expire in July.
The issue stems from a significant ruling for taxpayers when the Court of Federal Claims decided in Kwong v. United States that Internal Revenue Code § 7508A(d) required a mandatory suspension of tax deadlines during the pandemic period. This suspension spanned from January 20, 2020, through July 10, 2023.
The court held that the IRS was not permitted to assess interest or penalties for obligations occurring during this specific window tied to COVID-19 disaster declarations. Consequently, many taxpayers may now be eligible to have previously paid penalties refunded or unpaid assessments abated.
Frost Law’s team is available to help taxpayers potentially affected by this development. Taxpayers and tax professionals should check their records to see if they incurred penalties or interest related to these key areas during the 2020-2023 period:
The Kwong ruling primarily impacts penalties tied to the timing of filings and payments. These include:
The Kwong decision also extends to information reporting requirements. If these forms were filed late or not furnished during the period, the following penalties may be abatable:
Partnership/S-Corp Late Filing (I.R.C. §§ 6698 & 6699): Late filing penalties for Partnerships (Form 1065) and S-Corps (Form 1120-S), which are typically calculated on a per-month, per-partner/shareholder basis.
Failure to File/Furnish Information Returns (I.R.C. §§ 6721 & 6722):
International compliance often carries "assessable penalties" that start at $10,000 per violation. The Kwong ruling suggests that deadlines for several high-dollar forms were also pushed to July 2023, raising refund or abatement possibilities for taxpayers affected by these. Affected forms can include:
Form 5471: Reporting for U.S. persons with interests in certain foreign corporations
Form 5472: Reporting for 25% foreign-owned U.S. corporations or foreign corporations in a U.S. trade/business.
Form 3520 / 3520-A: Reporting for foreign trusts and the receipt of large foreign gifts.
Form 8865: Reporting interests in foreign partnerships.
Form 8938: Foreign Financial Assets (FATCA) reporting for specified foreign financial assets.
Finally, the Kwong ruling touches on several specialized excise and compliance areas that could affect penalties for employers under the ACA or those who missed Individual Retirement Account (IRA) Required Minimum Distributions (RMDs):
ACA Employer Shared Responsibility Payments (ESRP): Also known as the "Hammer Penalty" for failing to offer health coverage.
Retirement Account Excise Taxes (I.R.C. § 4974): Penalties incurred for missing Required Minimum Distributions (RMDs).
If taxpayers were assessed penalties or interest between January 2020 and July 2023, they should quickly review records to determine if a refund or abatement claim is appropriate in light of the Kwong ruling. Affected taxpayers should consider filing Form 843, Claim for Refund and Request for Abatement, by July 10, 2026 to protect their rights.
The team at Frost Law is available to help taxpayers, businesses, and tax professionals navigate questions about potential refunds and abatements as well as helping them determine whether filing IRS Form 843 is needed to protect their rights. People can visit askfrost.com, call (410) 497-5947, or email Info@AskFrost.com.
Frost Law is headquartered in the Washington, D.C., metro area. With multiple offices, the firm works with clients across the nation and around the world. Currently, more than 80 Frost employees include skilled attorneys focusing on tax, business, litigation and estates as well as Certified Public Accountants, Certified Financial Planners™, Enrolled Agents and other tax professionals. Frost’s team can help people and businesses on issues including tax planning, tax strategy, tax minimization as well as helping scam victims with tax issues.
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