The IRS May Owe You: Recover Pandemic-Era Penalties Before the July 10 Deadline

Two federal rulings have opened a time-sensitive refund opportunity tied to COVID-era enforcement actions 

A Little-Known Refund Opportunity Is Closing Fast 

During the COVID-19 emergency, the IRS made a critical operational misstep that continues to unfold today. Millions of taxpayers—individuals and businesses alike—were assessed late-filing and late-payment penalties during a period when federal disaster relief measures were in effect.

Now, following two federal court rulings, those penalties are being challenged—and in many cases, refunded.

For HR leaders, finance teams, and business owners, this is more than a tax issue. It’s a financial recovery opportunity with a hard deadline: July 10, 2026. 

What Happened During the Pandemic 

In early 2020, the federal government declared a nationwide emergency in response to COVID-19. Under existing tax law, this declaration automatically extended certain filing deadlines and paused enforcement actions tied to those deadlines.

At the same time, IRS systems continued issuing penalties and interest as if those extensions did not apply.

The result: widespread penalties that may not have been legally enforceable.

According to the IRS, the agency has already issued $1.2 billion in penalty relief to affected taxpayers.

Yet that relief has not reached every affected business.

The Court Decisions That Changed Everything 

Two separate federal cases reshaped how these penalties are viewed:

1. Abdo v. Commissioner (2024) — The U.S. Tax Court determined the IRS lacked authority to impose certain penalties during an active disaster declaration.
2. Kwong v. United States (2025) — A federal court independently confirmed that position, reinforcing the legal precedent.

Together, these rulings establish a clear foundation: penalties assessed under those conditions may be invalid.

This is not a technical loophole. It’s a legal correction.

Why Many Employers Haven’t Claimed Their Refund

Despite the rulings and the IRS's initial action, many organizations have not recovered what they’re owed. The reason is simple: refunds are not automatic in most cases.

A formal claim must be submitted.

For employers managing payroll taxes, multi-entity filings, or complex compliance workflows, this requirement creates friction. Historical data must be reviewed, IRS transcripts accessed, and claims prepared accurately.

That level of effort often delays action—or prevents it entirely.

The Financial Impact Is Significant

The potential refund amounts are not trivial.

Many businesses impacted during 2020–2023 faced penalties across multiple filings, entities, or tax years. When those amounts are aggregated, refunds can reach into the tens—or even hundreds—of thousands of dollars.

At scale, this becomes a meaningful financial recovery lever.

At a time when organizations are under pressure to control costs and improve margins, recovering previously paid penalties is one of the few opportunities that directly improves the bottom line without operational disruption.

A Clear Deadline—And Limited Time to Act

The window to file these claims is not open indefinitely.

July 10, 2026, marks the cutoff for many eligible refund requests tied to the COVID-era disaster declaration timeline.

Missing that deadline could mean forfeiting funds that are legally recoverable today.

Why This Matters for HR and Finance Leaders

While this issue originates in tax policy, the impact crosses functions. HR and payroll teams often manage or influence employment tax filings, placing them close to the source of these penalties. Finance leaders, in turn, are responsible for cash flow optimization and identifying recovery opportunities that can directly improve the bottom line. At the same time, compliance teams must ensure historical processes align with evolving regulatory interpretations shaped by recent court rulings.

This is exactly the kind of cross-functional gap where value is often missed—not due to lack of awareness, but due to fragmented systems, data, and ownership.

According to the IRS Data Book, the agency assessed tens of millions of penalties annually in recent years, underscoring the scale of enforcement activity even outside extraordinary periods like COVID-19.

How Ryze by HRlogics Helps Simplify the Process

Identifying and recovering these refunds does not need to be manual or resource-intensive.

Ryze by HRlogics is designed to help organizations uncover and act on opportunities like this—without adding operational burden.

With Ryze by HRlogics, employers can:

• Quickly assess eligibility across entities and tax periods
• Securely access IRS transcripts with permission-based, view-only integrations
• Identify estimated refund amounts without manual data gathering
• Streamline claim preparation and submission with expert-backed workflows
• Reduce risk by ensuring documentation aligns with current legal interpretations

Instead of navigating a complex, time-sensitive process internally, teams gain a structured, guided path to recovery.

The Window Is Closing. The Opportunity Is Real.

There is still time to act—but not much.

If your organization filed tax returns between 2020 and 2023 and incurred penalties or interest, this is a clear opportunity to recover funds that may have been incorrectly assessed.

Register for our upcoming webinar to understand the rulings, the process, and what actions to take before the deadline.

Or schedule a demo today to see how Ryze by HRlogics can help you identify and recover eligible refunds.