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VideoThe Tax Navigator – Kwong Case Update: How to File Form 843 for IRS Penalties and Interest Refunds
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In this episode of The Tax Navigator, Sean Muller and Dawn Rhea continue discussing the Kwong case and its potential impact on IRS penalties and interest. They focus on how the IRS appeal affects taxpayer positions, when Form 843 may be used to file refund or abatement claims, and how taxpayers can evaluate potential penalty and interest refund opportunities. They also explain what it means to submit a protective claim, key timing considerations and urgency, and the risks associated with third-party promoters, helping taxpayers understand what actions may be worth taking despite ongoing uncertainty.
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Detailed Description of The Tax Navigator – Kwong Case Update: How to File Form 843 for IRS Penalties and Interest Refunds
00:00:00
Sean: Alright. Dawn Rhea is joining me again. We’re going to continue on Kwong and what it means and what we have to be doing.
00:00:05
Sean: So, if we have a taxpayer that had some penalties or interest during this period, then what do we have to do? Because the IRS has appealed the case, so they’re not going to just give us a refund, even though there actually is a recent case that was settled where the courts didn’t charge interest during the Kwong sort of period — during this federal [disaster] period.
00:00:29
Sean: But the IRS is going to say they’re going to fight this because it’s billions of dollars, if you read in the press about what that is. So, what do taxpayers need to do now in the next 45 days?
00:00:37
Dawn: Sure. Great question.
If you have been assessed penalties or interest during the 1,268 days that Kwong says are postponed — and that is, again, if you were assessed penalties and interest for filings that occurred during January 2020 all the way out to May 2023 — there is a form called Form 843.
00:01:01
Dawn: And on that form, you can request either a claim for refund if you did affirmatively pay penalties or interest, or a claim for abatement if you are still dealing with penalties that arose during that time period. And you fill out the form. It’s one tax year per form. You do have to put information in there that, “Hey, you’re filing this in accordance with Kwong v. United States.”
00:01:25
Dawn: The big caveat, as Sean has said, is this is being appealed. So what you need to do is get in the queue, so to speak, and file your claim for refund on or before July 10, 2026.
00:01:38
Dawn: It’s not automatic, like, “Oh, you’re going to get a refund tomorrow.” There’s no guarantee here, but it does put you in the queue for a protective claim pending the outcome of the Kwong appeal.
00:01:48
Sean: Two follow-ups on that.
We’re already starting to see what we in the CPA world call the “ERC mills,” where these groups got stood up and they started saying, “We can get you all these ERC refunds,” and they claim government shutdown and a lot of them are fraudulent. Well, now we’re already seeing these “Kwong mills,” right?
00:02:04
Dawn: Yep.
00:02:05
Sean: Where they’re setting up these websites and saying, “Hey, call us and we’ll do a contingency for you and tell you to get you all this money back.”
So, what do we feel about all that?
00:02:12
Dawn: Number one, I’m not exactly sure that contingency works.
I think there’s this rule called Circular 230 out there for tax professionals to have to follow.
00:02:21
Dawn: And number two, there is no guarantee that there will be a refund.
I will tell you, going through IRS appeals currently, IRS Appeals officers on both coasts have indicated that because this is what is known as a case that is open for review and challenge, and has been challenged, even at appeals, they’re not considering it.
00:02:42
Dawn: The idea of a mill just automatically getting you some sort of money back, it’s not possible.
00:02:49
Sean: Okay. So just as an example here, we know there are other penalties and interest, but let’s just talk about a taxpayer who, for their 2020 tax return, didn’t timely make their estimated tax (ES) payments.
00:03:01
Dawn: Sure. Great question.
00:03:02
Sean: Then they file the return, they don’t complete the underpayment penalty schedule. The IRS sends them a notice and says, “You owe us $5,000 for ES underpayment penalties.” Is that an Form 843 claim?
00:03:14
Dawn: Absolutely.
00:03:15
Sean: Okay. Are there any IRS penalties or interest you can think of that wouldn’t apply during this period?
00:03:21
Dawn: Absolutely. So great question. If you had a tax liability from years before like the Kwong period started, and you haven’t paid until way after the Kwong period started, there is a Treasury regulation that is on point that says, “Hey, if this liability arose before the declared disaster period and you paid it sometime after, you can’t basically use this disaster period as a windfall.”
00:03:51
Dawn: Now, of course, there are law firms as well as accounting firms that are saying, take the shot because, again, Treasury regulations post the dismantling of Chevron deference, are subject to challenge. It’s a great question.
So even those people, depending on the size, probably want to take a shot at it.
00:04:11
Sean: Alright. We have about 45 days to get an Form 843 filed. It’s a protective claim. No guarantee that you’re going to get the money back because the IRS has appealed it.
00:04:21
Dawn: Correct.
00:04:22
Sean: But, like I said, if it’s a big enough number, you might as well take a shot at it.
00:04:24
Dawn: One hundred percent. And there are a couple of caveats. This form is not electronically filed. It does need signatures. There are all of those caveats around filing this Form 843, including all the language about, “Hey, I’m doing this pursuant to Kwong,” etc.
00:04:39
Dawn: And to make enough of a case in the form to show that these were, in fact, penalties, interest or other things that occurred during that postponement period.
00:04:49
Sean: Alright. Well, Dawn, I appreciate it. Thanks so much.
This episode of The Tax Navigator was recorded prior to publication. Some references or updates discussed may reflect information current as of the recording date.
