Tax Talk: Money Lessons That Actually Make Sense | 5-21-26
Key Takeaways:
- A recent court ruling may allow taxpayers to claim refunds of certain IRS penalties and interest assessed during the COVID-19 disaster period, but protective claims may need to be filed by July 10, 2026.
- Frozen tax thresholds for investment income, Social Security benefits, and home sale exclusions are causing more Americans to face unexpected taxes, making proactive tax planning increasingly important.
- Several tax deadlines and IRS developments, including expiring EV charger credits, erroneous IRS notices, and conservation easement settlements, require timely attention to avoid costly mistakes.
Here's something that almost nobody is talking about — and it could be worth real money to you, your family, or your business.
A 2025 federal court ruling quietly opened the door to potential refunds of penalties and interest that the IRS collected during the COVID-19 pandemic. The case, known as Kwong v. United States, was decided by the Court of Federal Claims and hinges on a federal statute that allowed the IRS to automatically extend tax deadlines during national disasters. The court ruled that the COVID federal disaster declaration — which ran from January 20, 2020, through May 11, 2023 — should have triggered an automatic 60-day extension beyond the end of the disaster. When you do the math, that means the IRS arguably should not have been assessing late-filing penalties, late-payment penalties, estimated tax penalties, or interest on underpayments for any tax period from January 20, 2020, through July 10, 2023.
The IRS disagrees and has appealed the ruling. But the IRS's own National Taxpayer Advocate is urging eligible taxpayers to act now — because most people will need to file a claim by July 10, 2026, to preserve their rights.
If you paid penalties or interest to the IRS during that period, the move is to file IRS Form 843, requesting either a refund of what you paid or an abatement of what's still owed. If you want to protect your rights while the appeal plays out, you file what's called a "protective claim" — essentially a placeholder that keeps your window open while the courts finish sorting this out. The National Taxpayer Advocate recommends writing "Protective Refund Claim Pursuant to Kwong Case" on the form. Critically, Form 843 must be submitted on paper. It cannot be e-filed.
This applies to individuals, small businesses, large corporations, estates, and trusts. If you're not sure whether you paid COVID-era penalties or interest, pull your tax transcript through your IRS online account — it will show exactly what was assessed and when. The NTA recommends attaching that transcript to your Form 843 when you file.
There is no guarantee this results in money back. The IRS is fighting the ruling and won't issue refunds voluntarily. But given the July 10 deadline, the cost of not acting is potentially high, and filing a protective claim costs nothing but time. If your potential refund is significant, get a qualified tax professional involved quickly. The clock is running.
There are also several "stealth tax traps" quietly hitting more Americans every year — and most people don't realize they're in them until it's too late.
The 3.8% net investment income surtax is one of the most common. Originally enacted as part of the Affordable Care Act, this tax applies to individuals with modified adjusted gross income above $200,000 (or $250,000 for joint filers) who also have investment income — dividends, capital gains, interest, rental income, and certain annuity payments. What makes it particularly sneaky is that the income thresholds have never been adjusted for inflation. They are exactly the same today as when this tax was first enacted in 2013. As a result, the number of Americans paying it has more than doubled — from 3 million filers in 2013 to 7 million by 2022 — not because more people became wealthy, but simply because incomes and investment gains grew while the thresholds stayed frozen.
Social Security taxation works the same way. The income thresholds at which your Social Security benefits start getting taxed — $25,000 for individuals, $32,000 for joint filers — haven't moved since 1984. Four decades of inflation later, vastly more retirees are paying tax on benefits that previous generations received tax-free. And the home sale exclusion — $250,000 for individuals, $500,000 for married couples — has been stuck at those figures since 1997, even as home values in many markets have tripled or quadrupled. Homeowners who bought in the right zip codes decades ago may face a surprising tax bill when they sell, precisely because the law never kept up with the market.
The planning implications here are real. These frozen thresholds make proactive income management more important than ever — Roth conversions, strategic timing of capital gains, and careful retirement income sequencing can all help keep you below thresholds that were designed for a different era.
If you're planning to install a home EV charger, you have a deadline that's coming up fast. The federal tax credit for home EV charging equipment — worth 30% of the cost, up to $1,000 — expires on June 30, 2026. Businesses installing commercial chargers have the same deadline, with credits available up to $100,000 per charger, depending on project requirements. If this is on your to-do list, it needs to move up your priority list immediately.
And if you've received a strange letter from the IRS recently — an IRS CP53E notice — here's what's happening. The IRS has largely stopped issuing paper refund checks and is now requiring direct deposit for almost all refunds. When bank account information is missing, invalid, or rejected on a return, the IRS sends a CP53E letter asking filers to update their banking details. The problem is the IRS has been sending these letters to people who don't have a refund coming at all — taxpayers who paid taxes with their return are getting notices suggesting they're owed a refund. It's causing understandable confusion and no small amount of anxiety.
If you received one of these letters and you know you paid taxes rather than expecting a refund, the IRS's National Taxpayer Advocate says to check your IRS online account to confirm the notice is an error — and if it is, simply ignore it. Don't respond, don't call the number on the letter, don't provide any banking information to anyone who reaches out as a follow-up. The IRS knows these erroneous notices are going out and is working to address the issue.
One more item worth flagging for business owners and investors who were involved in conservation easement tax shelters in past years. The IRS is currently offering limited settlement opportunities to participants in syndicated conservation easement arrangements — the schemes where partnerships donated inflated land easements to generate oversized charitable deductions for investors. The Tax Court has sided with the IRS in the vast majority of these cases, allowing on average only 6% of the originally claimed deduction. The settlement offer on the table fully eliminates the charitable deduction, allows a one-time deduction for out-of-pocket costs, and imposes a 10% penalty for valuation misstatements — dramatically less than the standard 40% penalty. But participants have 90 days to accept, after which the penalty increases to 20%. If you or your entity received one of these settlement letters, the clock is running, and this deserves immediate attention from a qualified tax attorney.
There is a lot happening in the tax world right now — COVID refund deadlines, stealth inflation traps, EV credits expiring, and confusing IRS correspondence filling mailboxes. The details matter enormously, and missing a deadline or misreading a notice can be costly.
That's exactly why having a team paying attention to these things on your behalf is worth its weight.
If any of this raises a question about your situation, let's connect. The July 10 COVID deadline alone is worth a quick conversation.
Disclaimer: This is educational content about tax law changes, not personal tax advice. For your specific situation, especially around itemizing vs. standard deduction, consult a qualified tax professional who can run the numbers for your unique circumstances.