IRS Debt Forgiveness After COVID: Refunds, Relief, and Programs

IRS debt forgiveness after COVID is now a narrower set of options than it was during the pandemic itself. The automatic penalty waivers for 2020 and 2021 have already been applied, and most other pandemic-era programs have closed. What remains is significant: a November 2025 federal court ruling could entitle tens of millions of taxpayers to refunds of penalties and interest paid during the COVID disaster period, but only if a claim is filed by July 10, 2026. Standard IRS hardship programs — payment plans, Offers in Compromise, and Currently Not Collectible status — are also still open to anyone struggling with tax debt.

The Kwong Ruling Could Refund Penalties and Interest

In November 2025, the U.S. Court of Federal Claims ruled in Kwong v. United States that federal tax deadlines were automatically postponed for the entire COVID-19 federal disaster period — January 20, 2020, through May 11, 2023 — plus an additional 60 days, extending affected deadlines to July 10, 2023.¹ Under the court’s reading of Internal Revenue Code § 7508A(d), any return or payment due during that three-and-a-half-year window was not technically late until after July 10, 2023. That means the IRS should not have assessed late-filing penalties, late-payment penalties, estimated-tax penalties, or interest during that period.²

The ruling potentially reaches a wide range of taxpayers and tax types, including income, employment, estate, gift, and excise taxes, and covers individuals, businesses, corporations, estates, and trusts.¹

The outcome is not settled. In May 2026, the IRS released Action on Decision 2026-01, accepting only a mandatory 60-day postponement running from January 20, 2020, through March 20, 2020, and rejecting any broader interpretation.³ The Department of Justice filed a notice of appeal to the Federal Circuit the same day, and the IRS has said it will aggressively litigate refund claims that rely on the broader postponement theory.⁴

Relief under Kwong is not automatic. To preserve any right to a refund or abatement of penalties and interest assessed during the disaster period, you have to file a claim, in most cases by July 10, 2026.⁵ Because the appeal is still pending, the National Taxpayer Advocate recommends filing a protective claim, which holds your place if the courts ultimately uphold the ruling.

How to File a Protective Claim

The claim itself is straightforward:

Use Form 843, Claim for Refund and Request for Abatement. Write “Protective Refund Claim Pursuant to Kwong Case” across the top.
File a separate Form 843 for each tax period and each type of tax.
In the explanation section, identify the Kwong case, reference the COVID-19 disaster relief period, describe the specific penalties and interest at issue, and explain that the claim amount cannot be fixed because it depends on the litigation.
A specific dollar figure is not required for a valid protective claim, as long as the form is clear enough for the IRS to identify the nature of the claim.
Mail the form to the IRS service center where you would normally file a current-year return. Use certified mail with a return receipt to prove timely submission.

Form 843 must be filed on paper; it cannot be submitted electronically.¹ If you have already paid the penalties or interest, you are filing for a refund; if they have been assessed but not yet paid, you are filing for an abatement.⁵ If the ruling is upheld after appeals, you will need to “perfect” your claim with final dollar amounts. If it is overturned, the claim is simply denied. Missing the July 10, 2026 deadline could forfeit any right to relief.

Automatic Penalty Relief Already Applied for 2020 and 2021

If you had a balance due for tax year 2020 or 2021, the IRS may have already forgiven some of your failure-to-pay penalties without any action on your part. Under Notice 2024-7, the IRS provided automatic failure-to-pay penalty relief to individuals, businesses, estates, trusts, and tax-exempt organizations that owed less than $100,000 per tax year in assessed taxes and had received an initial balance-due notice between February 5, 2022, and December 7, 2023.⁶ Refunds and credits went out automatically to those who had already paid.

Taxpayers who owed $100,000 or more per year were not covered automatically but could still apply through the reasonable-cause or first-time-abate programs.⁶ The failure-to-pay penalty started accruing again on April 1, 2024, for accounts that received this relief.⁷

An earlier program, Notice 2022-36, provided broader penalty relief for certain 2019 and 2020 returns filed by September 30, 2022. That program is closed.⁸

Standing IRS Programs for Tax Debt

Whether your balance dates from the pandemic or not, three IRS programs remain the main tools for reducing or managing what you owe.

Payment Plans

The IRS offers online payment plans through two tracks. If you owe less than $100,000 in combined tax, penalties, and interest, you can set up a short-term plan of 180 days or less with no setup fee. If you owe $50,000 or less, you can set up a long-term installment agreement, with setup fees ranging from $22 for a direct-debit plan applied for online to $178 for a non-direct-debit plan arranged by phone or mail. Low-income taxpayers, defined as those with adjusted gross income at or below 250% of the federal poverty level, can have setup fees waived or reimbursed.⁹

During the pandemic, the IRS temporarily expanded access under its Taxpayer Relief Initiative, letting qualifying individuals who owed less than $250,000 set up installment agreements without providing a financial statement.¹⁰

Offer in Compromise

An Offer in Compromise lets you settle tax debt for less than the full amount owed if the IRS determines you cannot pay in full or that doing so would cause financial hardship.¹¹ The IRS weighs income, expenses, asset equity, and ability to pay. The application requires a $205 fee and an initial payment, both waived for low-income applicants.¹² If your offer is accepted, you must stay in full compliance with filing and payment requirements for five years, or the original debt is reinstated.¹³ The IRS warns taxpayers about “OIC mills” that overpromise results and charge large fees.

Currently Not Collectible Status

If you cannot afford to pay your tax debt and also cover basic living expenses, you can ask the IRS to place your account in Currently Not Collectible status. While the status is in effect, the IRS generally stops levying assets and income, though it may still file a federal tax lien and will continue to apply any future refunds to the balance. Interest and penalties keep accruing, and the IRS may review your finances periodically to see whether collection should resume. To request the status, call the IRS and provide financial information on Form 433-A or Form 433-F.¹⁴

What Isn’t Covered

Several pandemic tax rules sit next to “IRS debt forgiveness” but do different things and are worth knowing so you don’t rely on them by mistake.

Stimulus payments. All three rounds of Economic Impact Payments have been distributed and the “Get My Payment” tool is offline. If you missed a payment, you may still be able to claim the Recovery Rebate Credit on a 2020 or 2021 return if you have not already.⁸

Student loan forgiveness. The American Rescue Plan Act’s exclusion of forgiven student loan debt from federal taxable income expired on December 31, 2025. Student loan debt forgiven in 2026 or later is generally taxable as cancellation-of-debt income unless it falls under a permanently exempt category such as Public Service Loan Forgiveness, Teacher Loan Forgiveness, or discharge due to death or total and permanent disability. Borrowers who were insolvent at the time of discharge may still exclude some or all of the forgiven amount by filing Form 982.¹⁵

Employee Retention Credit. The IRS closed most ERC claims by December 31, 2025, and the One, Big, Beautiful Bill Act (Public Law 119-21), signed July 4, 2025, formally disallowed refunds for ERC claims filed after January 31, 2024, for the third and fourth quarters of 2021.¹⁶ Businesses that filed ineligible claims and have not yet received payment can use the IRS’s withdrawal process to avoid penalties and repayment demands.¹⁷

The 10-year collection clock. The IRS generally has 10 years from assessment to collect a tax. No legislation extended that period because of COVID-19, and the usual triggers that pause it — bankruptcy filings, pending installment agreement requests, offers in compromise, and other actions — continued to apply.¹⁸ Some debts that were close to expiring during the pandemic pause may have expired on their own.

1
Taxpayer Advocate Service. Tens of Millions of Taxpayers May Be Eligible for Significant Tax Refunds
2
CNBC. COVID Tax Refund
3
Current Federal Tax Developments. IRS Action on Decision: Decoding the Service’s Limited Acquiescence on Mandatory COVID-19 Postponements
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Venable LLP. Kwong Update: Refund Opportunities and the July 10 Deadline
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Taxpayer Advocate Service. Protect Your Potential COVID-19 Disaster Relief Refunds by Filing Formal or Protective Claims for Refund
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IRS. IRS Provides Penalty Relief for 2020 and 2021 Tax Returns
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IRS. Coronavirus Tax Relief and Economic Impact Payments
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IRS. Offer in Compromise FAQs
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Taxpayer Advocate Service. Currently Not Collectible
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Taxpayer Advocate Service. What to Know About Student Loan Forgiveness and Your Taxes
16
IRS. One Big Beautiful Bill Provisions
17
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18
IRS. IRM 5.1.19, Collection Statute Expiration Date