Episode 30: The Kwong Case -- A Big Tax Deal, But What About Information Returns?

Welcome to this week's episode of Information Return Intelligence, the fast moving weekly podcast where we talk about all things relating to 1099s, 1042S, the W9, etc., etc. This week we're going to talk about a court case called the Kwong Case, which came out late April. And it's gotten some airplay and been featured in some publications, mainly talking about the impact on individuals filing personal tax returns. But what about information returns? We will take a look on this week's episode of Information Return Intelligence, sponsored by IOFM, the Institute of Finance and Management. Check them out at IOFM.com. So the Kwong case, this is a ruling by the Court of Federal Claims, in which the court ruled that deadlines during the COVID pandemic should have been delayed until july tenth, twenty twenty three. And basically what the ruling said is that the law, as written at the time, Congress has since changed it, but as written at the time, the deadlines for things relating to taxes should have been suspended from january twentieth, twenty twenty through july tenth, twenty twenty three. That's a bigger deal than it might seem. And that's because that means if you had late filing penalties or late payment penalties assessed against you by the IRS during COVID, you might be able to get that money back. Maybe. Now what about information returns? See all of the articles that you see about this focus on individual taxes, and that's fair because that's really where it's at with the Kwang case. But we gather here every week to talk about information reporting. So what about that? There could be a little relationship to information returns and the Quang case. So let's break this down. Certain actions due during the time the federal COVID disaster declaration was in effect, which the court said was january twentieth, twenty twenty through may eleventh, twenty twenty three, and then sixty days after that, which would be july tenth, twenty twenty three, would not have been due until july tenth, twenty twenty three. Which again, that's a really big deal. Personal tax returns and such, where you might have had penalties. Anything that was due during that time, which is almost three and a half years, would have had a due date of july tenth, twenty twenty three. Well, unfortunately for us in the information return world, it's not quote everything. It's some things due during that time. So this is handy for individual filers who owed money to the IRS or filed a tax return late during the pandemic. It's very handy for those kind of late filing penalties, late payment penalties, plus the associated interest that the IRS charged. Not likely to be very handy for information reporting, though. We'll break it down after we hear a word from our sponsor, IOFM. Financial operations professionals, accounts payable, procurement, procurement to pay, accounts receivable, credit and collections, order to cash, whatever your organization calls it, and whatever your role is, whatever your title is, you're facing increasing pressure to improve performance. Compliance regulations from the IRS are continually changing. If you're an organization that's subject to the NACA rules, those are changing. Plus, you have threats of fraud and abuse everywhere you turn. Despite all these challenges, there are not very many reliable, independent, and comprehensive places you can turn for help. That's where IOFM comes into play. Join over 10,000 of your peers and become an IOFM member today. Check them out at IOFM.com. And now back to the show. So with information reporting, you have three big areas of potential penalties late filing penalties, late deposit penalties on backup withholding, and failure to file Form nine hundred forty five. And unfortunately, information returns are explicitly not on the list of things that get pushed back in a disaster. The usual due dates still apply. So if you paid penalties for late filing of ten ninety nines or ten forty two S during COVID, Quang is not going to help you. Same thing with deposits. Deposits of backup withholding and payroll taxes are explicitly not on the list of things that get pushed back in a disaster. Your usual due dates apply, so if you had penalties and interest on late deposit of backup withholding during COVID, Quang is not going to help you. So that leaves us with the third area that you could face penalties in the information return world, and that is with 945s and the 1042, not 1042s, the 945 or 1042, the summary forms relating to backup withholding. If you had late filing penalties on the 945 or the 1042 during COVID, you might be eligible for a refund. Notice the use of the word might because there's a big caveat. And this caveat applies to what we're talking about, the 945 and the 1042. It applies to anything with Quang where you might be trying to get a refund of penalties and interest, like on your personal taxes. This is not a done deal. This ruling was from the U.S. Court of Federal Claims. There are going to be two rounds of appeals. First of all, the Justice Department has already filed an appeal of the Federal Claims Court ruling. So the next stop is the Federal Appeals Court. And then whichever way the Federal Appeals Court goes, it's going to get appealed to the U.S. Supreme Court. So we're talking several years before we know the final outcome on this. But the problem is that the law says you only have three years to file for a refund. And that would be three years from July 10th, 2023, which means July 10th of 2026, next month, is the deadline to throw your hat in the ring for a refund with what's called a protective claim. We're not going to go any further down the road with what a protective claim is, because number one, it probably isn't something from information return standpoints that affects many listeners. Number two, even if it does affect you, you need to talk to the applicable party, that is whoever deals with tax filings on your side. Because they're the ones who are gonna have to do this protective claim by July 10th, 2026. So to recap, for most of you listening to this, there's probably not much there under the Kwang case, unfortunately. But I wanted to bring it to your attention because number one, I think it's interesting. It's a current event in the tax world, and I think it's interesting. Plus, you might be listening to this and think, hey, on my personal taxes or on other things in my organization, we had some penalties for our income taxes during that time. We should investigate this and talk to the applicable party about this. And number two, if you did have late filing penalties during the pandemic because of late filing of the 945 or 1042, you might be able to get a penalty refund. So that's why we bring it up on this week's episode of Information Return Intelligence. Sponsored by IOFM, visit their website at IOFM.com. I'm Jason Dynason, and we'll talk to you again next week. Dinason Media Ventures.