We are issuing this follow-up to our previous alert regarding the significant opportunity for taxpayers to recover underpayment interest and certain penalties accrued during the COVID-19 pandemic. We are now within the final 60-day window before the July 10, 2026, statute of limitations deadline. This date is critical for filing refund or protective claims for many taxpayers who paid liabilities attributable to the pandemic period.
The Basis for the July 10th Deadline
The opportunity for these refunds is based on the mandatory application of Internal Revenue Code (IRC) § 7508A(d). As established by the courts in Abdo v. Commissioner and Kwong v. United States, the mandatory disaster relief period for the COVID-19 pandemic spanned from January 20, 2020, through July 10, 2023.
Under the law in effect during the pandemic, this period must be disregarded for performing certain tax acts, including the payment of taxes and the filing of claims for refund. Because the disaster period was deemed to end on July 10, 2023, the three-year statutory window to file a claim for many affected tax years (specifically 2019 through 2022) is set to expire on July 10, 2026.
Affected Taxpayers and Liabilities
This refund opportunity is not limited to a specific industry or filing status; it applies to any individual or business taxpayer who paid underpayment interest or penalties that accrued during the disregarded window. Taxpayers should be particularly mindful of the following liabilities:
• Underpayment Interest: Interest that accrued between January 20, 2020, and July 10, 2023, on any tax deficiency.
• Failure-to-File and Failure-to-Pay Penalties: Penalties assessed for late acts that occurred during the 39-month disaster window.
• Estimated Tax Penalties: While the tax code generally requires withholding to be paid in equal amounts throughout the year, the disaster postponement applies to the act of making quarterly installment payments. Quarterly payments due during the 39-month window may be treated as timely if satisfied by the end of the disaster period.
Application to Audits, Prior-Year Liabilities, and Easement Investors
For taxpayers involved in complex tax proceedings—such as conservation easement transactions, Bipartisan Budget Act (BBA) partnership audits, or corporate examinations—it is critical to understand how the statute of limitations applies to your account. This is equally relevant for taxpayers who recently paid deficiencies, interest, or penalties relating to tax years that predated the pandemic (e.g., 2015-2018).
Under IRC § 6511(a), a refund claim must be filed within three years from the time the return was filed or two years from the time the tax was paid, whichever period expires later.
• The General Standard (Two-Year Payment Rule): Most taxpayers who settled examinations or late-paid taxes and satisfied their deficiencies, interest, and penalties in late 2024, 2025, or 2026 are governed by the two-year rule. For these individuals, the deadline to file a refund claim is two years from the specific date their payment was made. This remains true even if the interest accrued during the 2020-2023 window or if the underlying tax debt relates to a year prior to the COVID period. For this group, the July 10, 2026, deadline is not the primary concern.
• The Narrow Circumstance for July 10th: A taxpayer—whether an easement investor, an audit subject, or one with a pre-COVID liability—would only need to act by the upcoming July 10, 2026, deadline if they are seeking a refund for a return filed during the COVID window (tax years 2019-2022) and they paid the applicable interest or penalties more than two years ago (e.g., in 2022 or 2023). In this scenario, the two-year payment window has already expired, making the three-year filing window (ending July 10, 2026) the only remaining "backstop" to preserve the claim
The Importance of Protective Claims
The IRS is not expected to issue these refunds automatically. Furthermore, the government has indicated its intent to appeal recent favorable court rulings, and the full scope of interest recovery is currently being litigated in cases such as Western Digital Corp. v. United States and Meta Platforms Inc. v. Commissioner.
To preserve the right to a refund while this litigation proceeds, taxpayers must act. If a formal or protective claim is not filed within the applicable statute of limitations, the ability to recover these payments may be lost forever, regardless of how the courts ultimately rule.
Professional Evaluation Recommended
Determining the exact amount of eligible interest and the specific application of the statute of limitations to your tax account requires a detailed technical analysis. Because the interaction between disaster postponement rules and standard refund statutes is complex, we strongly encourage any taxpayer who paid interest or penalties during or related to the 2020-2023 period to reach out to a tax professional. A professional review of your IRS transcripts and payment history is essential to ensure your rights are fully protected before the upcoming deadline.
Have Questions About Your Eligibility?
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Matthew S. Paolillo
Partner, Tax Controversy and Tax Planning Practice Group
770.379.1450
mpaolillo@mfcounsel.com
