Kwong Case and Information Returns
Watch or listen to the related podcast: https://podcasts.dinesenmedia.com/show/information-return-intelligence-1/the-kwong-case-a-big-tax-deal-but-what-about-information-returns/
A recent ruling by
the US Court of Federal Claims could open the door to relief from some penalties and interest refunds incurred during COVID. You may or may not have heard of this case, and at any rate, the news articles on it have centered on income taxes. What about information returns?
Background
The case, called the Kwong case, involves what happens with various deadlines for taxes when a disaster declaration is in effect.
We won’t go into all the ins and outs of it here, but here is the basic view: the Court of Federal Claims ruled that most tax deadlines during the COVID pandemic — January 20, 2020, through May 11, 2023 — should have been 60 days after the end of the disaster declaration — July 10, 2023.
A long period of time indeed.
The articles written about this have been about the impact on individual taxpayers, for things such as getting penalty and interest relief for things such as that assessed during the disaster declaration. And that’s fair, because individual taxpayers are really “where it’s at” with the Kwong case.
But we gather here each week to talk about information forms. So, does any of this apply to information forms?
Section 7508A, Revenue Procedure 2018-58
Let’s set the stage a little bit. For information returns, penalties largely arise in one of three ways:
- Late filing of 1099s and 1042-S.
- Late deposits of backup withholding.
- Late-filing penalties for Form 945 or Form 1042-S
Unfortunately for our readers, the disaster relief provisions do not affect the first two items here.
Regulation 301.7508A-1 specifically says deposit deadlines are not postponed — 301.7508A-1(c)(ii).
Information returns are not addressed in the regulation. Instead, the regulation states that the Treasury Department and IRS are authorized to specify other acts in other published formats — 301.7508A-1(c)(vii).
So then we turn to Revenue Procedure 2018-58, which is the most-recent listing of various actions postponed under section 7508A. Form 1099 (and 1042-S) is not on the list. Straight from the notice: “In addition, these tables generally do not refer to the filing of information returns or furnishing of statements.”
There is some minor relief for certain things relating to Form 1099-B (and this relief for Form 1099-B doesn’t affect the filing of the form itself, but rather the reporting of certain background information between brokers). Filers of Form 8300, relating to receiving cash payments from customers above $10,000, also get relief.
This is a long way of saying, items one and two on the list are wiped out right away. This leaves item three.
Forms 945, 1042
Possible relief would apply to the forms associated with backup withholding — Forms 945 and 1042. If you were penalized during the pandemic for these forms that were due during the pandemic, then penalty relief may apply.
Note the use of the word “may.” The Kwong case is not a done deal.
Appeals, Claim Deadline Looming
The Department of Justice has filed an appeal of the Kwong case. The next round of appeals is the Federal Appeals Court, and any ruling there will almost certainly be appealed to the US Supreme Court. This means the IRS isn’t going to pay any refund of penalties or interest until these appeals are exhausted.
Meanwhile, July 10, 2026, is a key deadline for submitting what is called a “protective claim” if you want to get a refund of penalties or interest under the Kwong case. Consult a tax professional or a tax attorney before even thinking about proceeding with this.
And remember: for most of our readers who live in the information return world, there isn’t likely to be much of a “there” there with the Kwong case. But we wanted to bring this to your attention, because 1) it’s interesting, and 2) it might have some usefulness for you if you had late-filing penalties with Form 945 or 1042.