Tens of millions of taxpayers may be owed IRS refunds from COVID-era

Tens of millions of taxpayers may be eligible for IRS refunds, penalty abatements, or reduced interest tied to the COVID disaster declaration period from Jan. 20, 2020 through May 11, 2023. The taxpayer advocate says affected taxpayers generally must file paper Form 843 claims by July 10, 2026 unless the IRS or Congress provides broader relief or a filing extension. The issue stems from recent court rulings, including the Kwong case, and could affect claims for late-filing, late-payment, estimated tax penalties, and overpayment interest.

Analysis

This is not a macro tax-refund story so much as a timing-and-distribution story. The biggest economic effect is that a large cohort of taxpayers who already paid penalties/interest may have a claim asset that is currently unpriced because it requires affirmative action, paper filing, and awareness; that combination tends to create a high-friction, low-uptake process where the government keeps a meaningful share of the liability simply because the claimant base under-files. The real market implication is that the value transfer is to tax preparers, compliance software, and refund-advance/working-capital providers that can monetize urgency and process complexity, not to the IRS itself.

The second-order risk is political and legal optionality around administrative relief. If the IRS or Congress creates systemic relief or an electronic portal, the “claims bottleneck” disappears and the realized payout rate jumps materially before the 2026 deadline; if not, the issue becomes a slow-burn headline risk that will resurface as the cutoff approaches. That means the catalyst window is long-dated but asymmetric: near-term media coverage matters for awareness, while the actual fiscal leak is spread over quarters to years and is likely to be revised upward if the claim process is simplified.

The contrarian read is that the market may overestimate how much of the theoretical refund pool is economically actionable. A large share of affected taxpayers will not file, some claims will be de minimis relative to filing friction, and appeals uncertainty can suppress behavior until 2026. So the best trade is not to position for a government cash outflow shock, but to own the picks-and-shovels around compliance and remediation where incremental volume can compound from increased consumer attention and professional-client outreach.

Key Decisions for Investors

• Long H&R Block (HRB) or Intuit (INTU) into the next tax-prep cycle: any sustained publicity increases paid-preparer engagement and software-assisted claim workflows; best risk/reward is on HRB for near-term volume elasticity, while INTU is lower beta but more durable.
• Small tactical long in tax-compliance / workflow beneficiaries (e.g., ADP as a generic compliance proxy, or software names with document-management exposure) on a 3-6 month view: upside comes from incremental paid assistance demand, downside is limited because this is an add-on use case rather than core revenue driver.
• Avoid shorting IRS-adjacent political headlines outright: the tail risk is a fast policy fix that accelerates claims processing and generates a positive-narrative bounce in assistance providers, making headline-driven shorts poor asymmetric setups.
• Pair trade: long tax-prep / filing assistance beneficiaries vs. short consumer discretionary retailers with weak tax-refund sensitivity, because any incremental refund awareness is more likely to be monetized by intermediaries than translated into broad-based consumption immediately.
• Set a 12-18 month alert around the 2026 claim deadline: if Congress/IRS does not create a portal by mid-2025, expect awareness campaigns to intensify and claim volumes to rise nonlinearly, which would be the best entry point for compliance-beneficiary longs.