No Tax on Wrongful Delay Act of 2026

Key Points

• This bill stops the federal government from taxing the interest it pays to people who win tax disputes. Currently, if the IRS holds your money too long during an audit and eventually pays you interest on your refund, you have to report that interest as income and pay taxes on it.
• The change would apply to any person or business that successfully wins an audit or a court case against the IRS. If the government is forced to pay you back for a mistake, you would get to keep the full interest amount without the IRS taking a cut of it back through taxes.
• The main goal is to prevent the government from profiting when it makes a mistake or delays a refund. Supporters believe it is unfair for the government to tax payments that are meant to compensate people for the IRS's own errors.
• If this becomes law, the new rules would start for the 2026 tax year. It would mostly help people who deal with long, expensive legal battles or complicated audits where the government was found to be in the wrong.

Impact Analysis

Govbase has not yet run an impact analysis on this legislation.