Failure-to-File Penalty COVID Refund

What the failure-to-file penalty is

IRC § 6651(a)(1) imposes an addition to tax when a taxpayer fails to file a required return by the due date, including any extension. The penalty is 5% of the net amount of tax due for each month or fraction of a month the return is late, with a 25% cap. If the return is more than 60 days late, a minimum penalty applies — the lesser of $485 (the 2024 inflation-adjusted floor) or 100% of the unpaid tax. When both failure-to-file and failure-to-pay apply in the same month, § 6651(c)(1) reduces the failure-to-file rate by the failure-to-pay rate so the combined rate is 5%, not 5.5%.

On the IRS account transcript, the failure-to-file assessment posts as TC 166 (computer-generated) or TC 160 (manually assessed). The dollar amount appears in the credit-or-amount column, and the legal assessment date is the "23C date" shown next to the entry. Both 1040 individual returns and entity returns (1120, 1120-S, 1065, 990, and others) carry their own § 6651(a)(1) exposure when filed late.

The penalty applies to the unpaid tax balance — not the gross tax liability. If withholding and estimated payments fully covered the year, the failure-to-file penalty is zero even on a late return. The penalty is conceptually independent of the failure-to-pay penalty even though the two often appear together on the same transcript.

How the failure-to-file penalty is calculated

Take the unpaid tax as of the original due date. Multiply by 5% for each whole or partial month the return is late, up to a maximum of five months (25% cap). For a return more than 60 days late, ensure the assessed amount is at least the lesser of the inflation-adjusted minimum (currently $485) or 100% of the unpaid tax. If failure-to-pay is also accruing in any of those months, reduce the failure-to-file rate by 0.5% for each such month so the combined rate caps at 5%.

Worked numbers: a Form 1040 filed five months late with $50,000 unpaid tax produces a failure-to-file penalty of 25% × $50,000 = $12,500, less the offsetting 0.5% per month for any months where failure-to-pay also accrued. The final assessed amount on the transcript reflects that combined-rate adjustment.

Why Kwong v. United States may unlock a refund

IRC § 7508A(d) provides a mandatory extension period for filing and payment deadlines for taxpayers in a federally declared disaster area. The November 2025 Court of Federal Claims decision in Kwong v. United States, 179 Fed. Cl. 382, read § 7508A(d) to require automatic suspension of those deadlines across the full COVID-19 disaster period — broadly January 20, 2020 through July 10, 2023. If that reading holds on appeal, many failure-to-file assessments with 23C dates inside that window may have been imposed without statutory authority and may be refundable.

The argument is particularly clean for failure-to-file because § 6651(a)(1) attaches directly to the missed filing deadline, which is the precise statutory hook § 7508A(d) suspends. The Kwong ruling is currently being appealed; eligibility is not guaranteed. A protective Form 843 filed before the relevant § 6511 deadline preserves the claim regardless of how the appeal resolves.

Finding the failure-to-file penalty on your IRS account transcript

Pull your IRS account transcript (see our transcript guide). For § 6651(a)(1), look for:

• TC 166 — computer-generated failure-to-file assessment, the most common posting.
• TC 160 — manually assessed failure-to-file penalty, often following an exam adjustment.
• TC 161 / TC 167 — abatements of TC 160 / TC 166 respectively. If part of your penalty was already abated (e.g., under Notice 2022-36), only the residual remains.
• The 23C date — the legal assessment date. If this date sits inside the COVID-19 disaster window, the assessment is a Kwong candidate.
• TC 670 — payment of the assessed amount. If you have already paid the penalty, the 2-year-from-payment refund window under § 6511 may apply.

Worked example: a 2020 Form 1040 filed eight months late

Consider an individual taxpayer who owed $50,000 on her 2020 Form 1040 and filed the return on January 15, 2022 — eight months after the May 17, 2021 postponed deadline. Because the return was more than five months late, the failure-to-file penalty hit the 25% cap. The IRS account transcript shows a TC 166 of $12,500 with a 23C date of February 21, 2022, alongside a TC 276 failure-to-pay of approximately $2,000 (offsetting the failure-to-file rate as required by § 6651(c)(1)).

The 23C date (February 21, 2022) sits inside the COVID-19 disaster window. The taxpayer paid the full assessed balance in May 2022. Her § 6511 2-year-from-payment window measured from May 2022 closes around May 2024 and may extend further under the § 7508A(d) suspension theory in Kwong.

A protective Form 843 referencing IRC § 7508A(d), Kwong v. United States, 179 Fed. Cl. 382 (Nov. 2025), and the TC 166 entry preserves a refund claim of $12,500 plus the in-window interest and the offsetting failure-to-pay amount. If the appeal affirms Kwong, the IRS may refund the assessed amount plus statutory interest.

Common scenarios where failure-to-file may be refundable

Late return with the 25% cap reached

Returns filed more than five months late are commonly assessed the full 25% cap. These are the highest-dollar Kwong candidates. The protective Form 843 should list the TC 166 entry, the underlying tax year, the 23C date, and the corresponding § 6651(c)(1) offset for any failure-to-pay penalty in the same months.

Minimum-penalty assessments on small balances

Returns more than 60 days late but with small unpaid balances trigger the inflation-adjusted minimum penalty (currently $485 or 100% of unpaid tax, whichever is lower). The Kwong analysis turns on the 23C date the same way as larger assessments — the protective claim is identical in structure even where the dollar amount is modest.

Partially abated under Notice 2022-36

Notice 2022-36 provided automatic abatement for many 2019 and 2020 § 6651(a)(1) assessments. If your penalty was fully abated, there is nothing left to claim. If only part was abated — or if the underlying tax year fell outside Notice 2022-36's coverage — the residual TC 166 may be a Kwong candidate.

Filing deadline for failure-to-file refund claims

IRC § 6511 generally requires the refund claim be filed within 3 years of the original return filing or 2 years from the date the penalty was paid, whichever is later. For COVID-era TC 166 assessments, the § 7508A(d) extension under the Kwong reading may further lengthen the window. The exact deadline depends on your filing and payment dates — confirm against your transcript before filing. If your failure-to-file penalty was assessed for tax year 2020 or 2021, file the protective claim now.

How PenaltyBack handles failure-to-file claims

We pull your IRS account transcript, identify the relevant TC 166 / TC 160 assessments, calculate which fall within the COVID-19 disaster window, and draft a Form 843 protective claim citing IRC § 7508A(d), Kwong v. United States, 179 Fed. Cl. 382 (Nov. 2025), and the specific assessment dates. We file under our authorized representative status. Our work is no-win, no-fee — if the IRS does not refund the penalty, you owe nothing. The Kwong appeal is pending; the protective claim preserves your right regardless of how the appeal resolves.

Frequently asked questions about failure-to-file refunds

I filed an extension — does that affect whether Kwong applies to my failure-to-file penalty?

An extension shifts the filing deadline but does not insulate you from a § 6651(a)(1) assessment if you filed after the extended date. The Kwong analysis turns on the 23C date of any resulting penalty, not on whether you extended.

I got automatic abatement under Notice 2022-36 — is there anything left for Kwong to address?

If your penalty was fully abated, there is nothing further to claim. If only part was abated, or if interest on the abated penalty was not refunded, the residual may qualify under Kwong. Pull the current transcript to confirm.

The minimum failure-to-file penalty hit me even though my unpaid tax was small. Is that refundable?

Possibly — the Kwong analysis turns on the 23C date, not the dollar amount. If the assessment date is inside the disaster window, the protective claim is the same in structure as a larger penalty.

If I had both failure-to-file and failure-to-pay, do I claim them separately?

Yes. Each is a separate statutory assessment under § 6651 and each has its own TC entry on the transcript. The protective Form 843 lists each penalty separately and claims a refund or abatement of each.

What if my return was filed late but the IRS did not assess the penalty until two years later?

The Kwong analysis turns on the 23C date of the assessment, not the return-filed date. A penalty assessed in early 2023 against a return filed in 2020 may still be a Kwong candidate if the 23C date sits inside the disaster window.

Related

Kwong v. United States, explained. Failure-to-file vs failure-to-pay. How to read your transcript. Form 843 protective claim wording. The IRS may owe you money from COVID.