Millions of Taxpayers May Be Eligible for a Major Refund Opportunity - Here's What You Need To Do, According To Kevin Lum
Tens of millions of American taxpayers could be eligible for significant refunds or abatements tied to penalties or interest the IRS assessed during the COVID-19 era, according to the IRS’ Taxpayer Advocate Service.
This comes about largely due to a recent court decision on Kwong v. United States, “interpreting a tax code provision that governs disaster-related filing and payment deadline postponements.”
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Basically, many penalties or interest payments instituted by the IRS during the emergency period tied to COVID-19 are now legally considered out-of-bounds.
If you were penalized for failing to file on time, make estimated tax payments, pay taxes owing more generally, experienced interest that began accruing prematurely or not at all, or were faced with overpayment interest during the time frame spanning Jan. 20, 2020, through July 10, 2023, you may be eligible to seek restitution.
It should be noted that the IRS is expected to appeal.
Finance personality Kevin Lum dove into great detail in a recent video tackling this news, going over the Taxpayer Advocate Service press release with a fine-toothed comb. Condensing National Taxpayer Advocate Erin Collins’ belief into a shorter phrase, Lum said: “This reaches a huge cross-section of individuals, small business owners, trusts and estates. Basically, anyone with a federal tax obligation due between Jan. 20, 2020, and July 10, 2023.”
After going over the case, Lum urged his audience to file Form 843, the Claim for Refund and Request for Abatement, as soon as possible. He then outlined two hypothetical buckets that taxpayers may fall into.
If you already paid interest and penalties: In this case, you’re asking for a refund.
If you haven’t paid interest and penalties: If these were assessed but you hadn’t paid yet, you’re requesting an abatement.
As far as next steps are concerned, Lum said you need to file a protective claim – a formal statement that you are contesting certain aspects of your previous tax assessment. The first move is to pull your IRS transcripts and evaluate your eligibility, with instructions on how to interpret this provided by Collins.
Look out for the following codes on your transcript specifically: TC166 (late filing penalty), TC276 (late payment penalty), TC196 (interest assessed) and TC176 (underpayment penalty for estimated taxes).
Then, Lum said, download and print Form 843 and write the following across the top of the document: “Protective refund claim pursuant to Kwong case.”
Doing so transforms the form into an example of the aforementioned protective claim.
Submit a Fully Completed Form 843 For Each Tax Year
There’s a pretty big catch, though. Form 843 needs to be submitted on paper, by mail – it cannot be filed electronically. That means you have to send Form 843, filled out properly and double-checked, by certified mail with a return receipt requested. Doing so gives you proof that you filed your protective claim prior to the July 10 deadline, in case your documents get lost in the shuffle.
The headache continues, as Lum explained: A separate Form 843 needs to be completed, filled out (including the protective claim disclaimer at the top of the form) and submitted by certified mail with a return receipt requested for each tax year you qualified in.
Finally, Lum was obliged to note that he was not officially giving legal advice. He closed out his remarks by saying it would be prudent to touch base with a trusted tax pro, your CPA or an enrolled agent on this matter “if there’s any real money on the table for you.”
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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