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A federal court just ruled that the IRS broke its own rules.
For three and a half years, between January 2020 and May 2023, the IRS quietly assessed penalties and interest on millions of late tax filings and late payments during the COVID-19 disaster period.
A recent decision in a case called Kwong versus United States found that the IRS should not have charged those penalties at all.
Here is why.
Federal law contains a provision, Section 7508A, that automatically pauses tax deadlines during a federally declared disaster, plus an additional 60 days.
COVID-19 was declared a federal disaster from January 20, 2020 through May 11, 2023. Add 60 days and the legally correct deadline for filings and payments during that period was July 10, 2023.
Not the deadlines the IRS actually enforced.
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Which means for three and a half years, the IRS may have been charging penalties and interest on returns and payments that were not actually late under the law.
Tens of millions of Americans were affected.
Small business owners. Individuals. Estates. Trusts. Anyone who filed or paid taxes during that window and got hit with a penalty.
This is not automatic money. The IRS has not agreed with the ruling and may appeal it. But here is the part that matters right now.
To preserve your right to a refund if the ruling holds, you generally must file a claim by July 10, 2026.
Miss that date and you may lose the opportunity permanently, even if the courts eventually side with taxpayers.
What To Actually Do This Week.
This is not financial advice. This is a process, and the process is the same for everyone.
Pull your IRS tax transcripts for tax years 2019 through 2023. You can access these through your IRS online account, or by mail or phone request.
Look specifically for failure to file penalties, failure to pay penalties, estimated tax penalties, or interest charges assessed between January 2020 and mid-2023.
If you see charges in that window, you may have a claim.
File IRS Form 843, Claim for Refund and Request for Abatement, referencing Kwong v. United States and Section 7508A. Many tax professionals are now familiar with this specific filing and can help if your situation is complex.
Do this before July 10. Not after.
Now Here Is the Part Nobody Else Is Talking About.
Let us say your claim goes through. A few hundred dollars. Maybe a few thousand, depending on how much you paid in penalties and interest during that window.
What happens next is entirely up to you, and it is the part of this story that actually matters for your retirement.
Here is the principle.
Unexpected money, refunds, rebates, settlements, inheritances, has a very specific and well-documented tendency in human behavior. It gets spent. Quickly. On things that feel good in the moment and disappear within months.
The retirees who build genuine wealth over decades treat unexpected money completely differently.
They do not view it as found money to be enjoyed.
They view it as capital to be deployed.
A $1,500 refund spent on a vacation is gone in a week.
A $1,500 refund invested in a diversified, low-cost index fund and left alone for 20 years, growing at the market's historical average of approximately 10% per year, becomes approximately $10,000.
Same starting amount. Same windfall. Two completely different outcomes, determined entirely by one decision made the week the check arrives.
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The Pattern Behind Every Unexpected Dollar.
This is not the first time money has unexpectedly landed in American bank accounts in recent years. Stimulus checks. Tax refunds. Settlement payments. Inheritance windfalls.
Survey after survey shows the same split in how people respond.
The majority treat unexpected money as spending money. It gets absorbed into daily life, often without the recipient being able to clearly account for where it went six months later.
A smaller percentage treats unexpected money as a rare opportunity. Capital that arrived without sacrifice, without years of saving, without giving anything up. Money that can go straight into a retirement account, a brokerage account, or a diversified investment without disrupting a single part of an existing budget.
That second group is not smarter or luckier. They simply made one decision differently the week the money arrived.
They decided in advance, before the check landed, what they would do with it.
Your Move This Week.
Before July 10 arrives, do two things.
Check your IRS transcripts for 2019 through 2023. If you see penalties or interest from the COVID disaster period, file your protective claim using Form 843. The window closes on a specific date and there are no extensions.
And before any refund actually arrives, decide right now, in advance, what you will do with it.
Make that decision today, while it is hypothetical and unemotional, rather than the day the check lands, when the temptation to spend it on something immediate will be strongest.
The retirees who consistently grow their wealth are not the ones who never get a windfall.
They are the ones who already decided, before the windfall arrived, exactly where it was going.
This refund, if it comes, is small. The principle behind what you do with it is not.
Stay sharp.
— US Retirement Report
This newsletter is for informational and educational purposes only and does not constitute financial, tax, or investment advice. Please consult a qualified financial advisor or tax professional before making any decisions, including whether to file a claim related to Kwong v. United States.
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