Small business owners may find themselves in an unexpected position: the opportunity to recover penalties and interest paid to the IRS during the COVID-19 pandemic. Two recent federal court rulings are raising questions about the IRS’s authority to assess certain penalties and interest from January 20, 2020, to May 11, 2023. As a result, businesses that incurred late-filing, late-payment, or estimated tax penalties during this period could be eligible for refunds. However, they must act before July 10, 2026, to secure their rights, warns the National Taxpayer Advocate.
During the pandemic, many businesses faced unprecedented challenges, including shutdowns, supply chain disruptions, and labor shortages, resulting in penalties often assessed due to circumstances beyond their control. While the IRS is contesting the court decisions, tax professionals are advising clients to file protective claims to avoid losing their ability to recover funds.
The potential refund amounts vary, with some businesses possibly regaining only a few hundred dollars, while others might recover significantly larger sums. This refund opportunity has particular relevance for businesses struggling with cash flow post-pandemic, as these funds could facilitate hiring, technological upgrades, and growth investments.
Taxpayers are encouraged to review their IRS records and penalty histories to identify their eligibility. Websites like IRSPenaltyback.com offer free initial assessments to help business owners determine potential claims without needing expert tax knowledge.
As the legal landscape continues to evolve, taking prompt action is crucial for affected taxpayers to safeguard their rights and capitalize on this potential financial relief.
Why this story matters
- Many businesses were financially impacted by penalties that may now be contested, providing possible refunds.
Key takeaway
- Business owners should verify their eligibility for refunds resulting from pandemic-related IRS penalties before the July 2026 deadline.
Opposing viewpoint
- The IRS is currently challenging the court rulings, and the final outcomes are yet to be determined, raising uncertainty around potential refunds.
