The IRS often refunds penalties and sometimes even interest if they were assessed incorrectly or if the taxpayer qualifies for administrative or statutory relief. You may need to file a claim if you qualify for a refund of COVID-era interest and penalties due to the ruling in the Kwong vs United States case or if you’re eligible for a refund for any other reason.
The biggest challenge? Figuring out where to start, which forms to file, what the rules are, or when the deadlines apply. Luckily, you’ve got us, and we eat, sleep, and breathe taxes, so we are up to date with everything you need to know about how to claim a refund.
In this guide, we’ll discuss what to expect when filing an IRS interest refund claim, from start to finish, and everything in between. By the end of the guide, you should know the documents you need, how to claim, the deadline, what different terms mean in the process, and how much it would cost you if you decided to outsource this to a tax attorney.
To get help now, contact the team at Wiggam Law for a personalized consultation about your case. We offer specialized services to help with Kwong refunds.
Key Takeaways
- Refund deadline: You have three years from the return’s due date or two years from when you paid.
- COVID-era refunds: If claiming a refund of interest and penalties assessed during COVID, you have until July 10, 2026, plus the duration of any other disasters, such as a hurricane, or two years from when you paid.
- Possible outcomes: Your refund request is fully approved, partially approved, or denied. If not fully approved, you can appeal or opt for litigation.
- DIY vs. tax attorney services: If dealing with complex legal issues or significant refund claims, we recommend hiring an attorney.
- Timeline: The IRS can take six months or longer to respond, especially if your application involves COVID-era refunds, as the Kwong case is still developing.
Understanding the IRS Interest Refund Process
Like any other IRS process, the interest refund process isn’t as simple as filing a form and waiting for the IRS to deposit funds in your bank account. It’s long, and the results may differ from one taxpayer to another, necessitating different approaches for every case.
As a taxpayer, you’re either requesting:
- A refund of interest or penalties you already paid.
- An abatement of interest or penalties you still owe.
- Both a refund and an abatement (if the claim involves multiple years or different types of taxes, only some of which have been paid)
- A protective claim if you’re making a claim based on pending litigation, but you want to protect your rights to claim.
For this guide, we will provide an overview of the refund claims process, but we’ll also focus on how to claim refunds triggered by the ongoing Kwong vs United States court case, which argues that taxpayers shouldn’t have been charged penalties and interest during the COVID-19 pandemic relief period from January 20, 2020, to July 10, 2023. These claims are generally time-barred, as July 10, 2026, has passed, however if another applicable federal disaster declaration, such as Hurricane Helene, applied to you, then you may still be eligible.
Step-by-step overview of the IRS refund claims process
Here’s what to do and what to expect throughout the refund process from start to end.
Step 1: High-Level Review
Before you take any step, you should ensure you are actually eligible for a potential refund. The IRS will refund penalties if you can show reasonable cause (something out of your control prevented you from paying or filing on time), the penalties were applied incorrectly, you qualify under the first-time abatement rules, or you meet other requirements.
Based on Kwong, the IRS may be required to refund all COVID-19 period interest and penalties. The most efficient way to see if you’re eligible for this relief is to talk with a tax professional about your case or review your transcripts, which you can access in your IRS tax account.
Look for any activities that happened between January 2020 and July 2023, including:
- Failure-to-file penalties
- Failure-to-pay penalties
- Estimated tax penalties
- Interest charges
Taxpayers can also apply for refunds of tax that was assessed incorrectly. You’ll need to present a much more complicated argument, but the claims process is effectively the same when applying for a refund of taxes that have been paid.
Step 2: Calculate the Potential Refund Amount
To decide if a claim is worth the effort, you’ll want to consider how much you’ll get if you receive your refund. This is especially true if you’re going to hire an attorney to help you claim a refund.
Refunds related to COVID-19, in particular, involve complex legal procedures and transcript analysis, and may even require litigation depending on the outcome.
To calculate your potential refund, you need to factor in all the penalties and interest that may be eligible for a refund. That can be substantial when you’re dealing with:
- Failure to file penalty – 5% of the unpaid taxes per month, up to 25%
- Failure to pay penalty – 5% of the unpaid taxes up to 25%
- Interest – The IRS charges interest at the federal short-term rate plus 3%, and it’s updated quarterly.
Just to put it into perspective, say a taxpayer had an individual income tax balance of $100,000 and neither filed nor paid it for a year. When they finally paid and filed, their balance was approximately $131,000. If this occurred during the COVID relief period, they may qualify for a refund of $31,000.
In contrast, say this happened outside of COVID, but the taxpayer qualified for first-time penalty abatement. Then, they would likely qualify for a refund of the penalties and the interest that accrued on the penalties, but not of the interest applied to the principal balance.
Request Your Refund Estimate for COVID penalties and interest.
Step 3: Prepare the Claim
To request refunds, including Kwong-related refunds for interest and penalties, you should file Form 843, “Claim for a Refund and Request for Abatement.”
You should complete the line items and ensure to include the tax years and the amount of the requested refund. You’ll need to file a separate form for each type of tax, each type of penalty, and for each tax year.
If you’ve already paid the amounts, then you’re requesting a refund; if the agency assessed tax (including interest and penalties) but you’ve yet to pay, you’re requesting an abatement.
You’ll also need to include a written legal explanation of why you’re requesting an abatement or refund, accompanied by supporting documents, such as relevant notices and payment documentation.
It’s important you complete this step correctly, as even small errors can cause major delays in the process. Also, success hinges on making a compelling argument that references the relevant parts of the tax code.
Step 4: File the Claim with the IRS
Form 843 can only be submitted on paper, as there’s no electronic filing option at the moment. We recommend sending it via certified mail so you can prove you submitted the form in a timely manner if it’s lost or delayed.
Due to the Kwong refunds, there’s a risk of paper flooding from all the submissions the IRS is about to receive, which could create processing delays and uneven treatment, since the agency is already stretched thin.
What Happens After Filing?
You wait. It could take six months or longer to receive a response. In the case of penalties and interest related to the COVID-19 pandemic, the IRS may have to wait for a court ruling, but the agency may review some claims before that happens.
The IRS might also ask for more documentation to decide on your case, which is pretty common. Delays are common in cases like these because the IRS faces staffing limitations, high claim volumes, and processing backlogs.
Possible Outcomes of an IRS Refund Claim
You applied. You waited. And now you’re curious about how the IRS may respond. Well, it’s hard to know exactly what will happen – a seasoned attorney can give you a good idea of what to expect with your specific case, but they can’t tell the future. Here are the possible outcomes you can prepare for:
Scenario One: Your Offer is Approved in Full
The IRS reviews your request, whether that’s penalty removal, interest adjustments, or a refund, and it agrees with the information. In that case, all you have to do is wait for your funds to be deposited if you applied for a refund, or for your balance to be reduced if you applied for an abatement.
This is obviously the best outcome, but even if you don’t get full approval, it doesn’t mean all is lost.
Scenario 2: The IRS Approves Part of Your Request
It could be that you claimed a refund for multiple years, and the IRS says, “Hey, we are willing to compensate you for this year, but we reject your request for the other years.” Or maybe you requested a refund and abatement for different types of taxes, and the IRS only approves one. Your interest accruals could also be reduced, but not fully eliminated.
For example, say you apply for a refund of payroll tax penalties assessed during COVID and after the pandemic. The IRS agrees to refund the penalties applied during COVID, but not the ones applied after – that’s an example of a partial approval.
Scenario 3: The IRS Rejects Your Offer
Rejection is hard, especially when it comes from the IRS. Unfortunately, this is a possibility. But don’t stop here and decide you don’t want to file a claim just because you’re worried about being denied. Instead, be aware of the importance of working with an experienced attorney and appealing the refund rejection if needed.
The IRS could deny your request for different reasons, like insufficient documentation, missed deadlines, or you claimed years that you didn’t qualify for. And that can all be addressed in appeals.
Scenario 4: Appeal
If you still feel the IRS should’ve approved your request, you can file a penalty appeal. To appeal, you’ll need to submit a protest letter, supporting documents, and legal arguments. You need to show the IRS why its verdict was wrong.
Scenario 5: Litigation
When you appeal an IRS decision, you get an independent review, meaning a new person reviews your application, but the process is still handled internally, so the agency remains in control. The appeal may follow existing IRS policies that the court disagrees with, and also limit your ability to leverage legal arguments.
So, if you still feel like the IRS is playing favorites, you can decide to let a judge decide. The Kwong v US case is a good example of a refund dispute in litigation.
DIY Refund Claims vs Working With a Tax Attorney
We are talking about saving money, so it’s only reasonable to discuss the differences and costs of filing the refund claim by yourself or hiring an attorney.
Honestly, the only pro of DIY’ing the refund is low cost, but it can be expensive if you make even a simple error. While in some cases we recommend handling tax issues on your own, for this particular tax issue, working with a tax attorney is highly advised, unless you’re dealing with a very low balance. Legal guidance is especially critical if you’re seeking a refund of COVID-era interest and penalties.
Here’s why:
- Legal complexities: Refund claims always require strong arguments, but that’s even more so if you’re dealing with a COVID-era refund. Best to leave it to professionals who stay up to date on legal procedures.
- Even small errors can delay the process: An incorrect application or missed deadline can lead to rejection. Once you hire an attorney, they’ll review your IRS transcripts, prepare your claim, and file it on your behalf, ensuring everything is in order and on time.
- You’ll be prepared in case of an appeal or litigation: The IRS won’t just hand out refunds willingly; it’s expected to push back. With a tax attorney, you’ll be prepared for this step if need be.
How Much Do Tax Attorneys Charge for Refund Claims?
Once you know the amount you’d potentially get, understanding how much a tax attorney would charge will help you decide whether to DIY your claim or get professional help.
Fees vary from attorney to attorney, but to help you get an idea, let’s do the math on a few popular fee structures.
Flat Fee + Contingency Fee
This is one of the most common payment arrangement plans that tax attorneys use for refund claims. That is a flat fee for filing the claim and a contingency arrangement that depends on the outcome.
For example, at Wiggam Law, if we were to file a refund claim for COVID-19 interest and penalties, we’d charge $5,000 for five refund claims plus $1,000 per additional tax refund claim.
Then we’d charge a 20% contingency fee.
Using our previous $100,000 tax debt that accumulated $31,000 in invalid interest and penalties during the pandemic-declared emergency period, here’s the net amount the taxpayer would get if they worked with us:
| Item | Amount |
|---|---|
| Interest Refund | $32,118 |
| Submission Flat Fee | $5,000 |
| Contingency Fee (20%) | $6,424 |
| Refund after Legal Fee | $20,694 |
For these fees, our clients can sit back and relax while we handle all the heavy lifting.
Hourly Billing
The other common billing method is hourly billing. This depends on how much a tax attorney charges per hour, which can range from $200 to $600 or more, depending on experience and seniority. Many firms charge varying rates depending on which professional is working the case in their firm – you’ll typically see a lower rate for paralegal filings, for example, than for direct representation from a senior attorney.
Which Fee Structure Is the Best for Refund Claims?
Ultimately, it depends on your case and what you’re comfortable with. The most important point: make sure you know what you’re agreeing to before you sign up. If a tax relief company isn’t upfront about how their fees work, that’s a big red flag you should find a different professional to help you.
Frequently Asked Questions (FAQs)
Here are the most common questions we’ve received about filing an IRS refund claim:
Why are IRS Interest refund claims handled case-by-case?
Every claim is different; the timelines, payment histories, assessments, transcripts, etc., but most importantly, the legal basis of the refund argument. Therefore, you need a different approach for each claim.
Will filing a claim stop IRS collections?
Not exactly, filing an abatement or a refund claim doesn’t pause the IRS collection actions. If you have a tax balance, the interest will continue to accrue while the claim is under review. It’s advisable to set up a payment plan or request the IRS to put your account on CNC status if you qualify. This is the only way to prevent the IRS from taking aggressive collection actions, such as wage garnishment, asset seizure, and bank levies.
Can I file a refund claim if the tax hasn’t been assessed yet?
Yes, you can file a protective claim. For example, if you invested in a syndicated conservation easement and your case is still pending, you may qualify to have COVID-era interest on your Syndicated Conservation Easement (SCE) liability abated, but you’ll need to file a protective claim.
Who should file a protective refund claim?
If you’re unsure of how much to claim because it depends on how a court resolves a pending legal case, you can file a protective claim. This may apply if you’re making a refund argument based on Kwong, where the case is pending appeal. It can also apply if you’re in the midst of litigation that will determine the amount of your tax liability and penalties – for example, if you’re dealing with SCE litigation.
Ready to File Your Refund Claim?
The best time to file a refund claim, based on Kwong, was weeks ago; the next best time is today. For COVID-era refunds, the deadline is tight for most taxpayers, and it’s urgent to apply now – here’s why you should apply now even though litigation is still ongoing.
Filing a refund claim now gets your request in by the refund SOL or preserves your right to a claim while the law develops with the Kwong appeals or as your SCE litigation continues to drag on.
If you’re ready, we are happy to help. All you have to do is schedule an appointment with us. Don’t wait – this is incredibly urgent, and the more you owe, the more is at stake.
