A 2025 Court decision may have opened the door to potentially massive refunds of IRS penalties and interest assessed during the COVID-19 pandemic. If you have not started reviewing your client files yet, the clock is ticking.
In Kwong v. United States, the U.S. Court of Federal Claims held, in the refund timeliness context before the court, that former IRC §7508A(d) required a mandatory, automatic extension of federal tax deadlines for the entire duration of the COVID-19 disaster period — from January 20, 2020, through July 10, 2023. That is more than three years of suspended deadlines, far longer than the limited relief windows the IRS had announced administratively during the pandemic.
The practical impact is significant: failure-to-file and failure-to-pay penalties, as well as underpayment interest (and possibly other penalties) that accrued during this window, may be subject to challenge under this interpretation.
Some clients may be entitled to refunds or abatements – but only if claims are filed before the applicable limitations period runs out, which may require protective action well before, or by, July 10, 2026, in many cases, depending on the facts.
This interpretation is based on a Court of Federal Claims decision and remains subject to appeal and further guidance from the IRS.
Table of Contents
- What the Kwong Court Actually Decided
- Why Loper Bright Made Kwong Possible
- Broader Implications for Tax Filing and Payment Deadlines
- Who Is Potentially Affected
- Which Tax Years Are Affected?
- The IRS Already Fell Short on Pandemic Penalty Relief
- The Connection to Abdo
- The Disaster-Related Extension of Deadlines Act
- Open Questions and Risks
- What Tax Pros Should Be Doing Right Now
- How IRS Solutions® Is Helping Members Stay Ahead
- Communicate This to Your Clients — We Have the Tools Ready
- The Bottom Line
- Frequently Asked Questions About Kwong v. United States
What the Kwong Court Actually Decided
Terry Kwong filed refund claims for penalties assessed across multiple tax years. The IRS denied those claims, and Kwong filed suit in February 2023 — more than two years after receiving the denial notices. Under normal circumstances, IRC Section 6532(a) imposes a strict two-year deadline for filing refund suits after the IRS mails a disallowance notice.
The Court of Federal Claims disagreed with the IRS and held that the 2019 version of Section 7508A(d) mandated a postponement of all “time-sensitive acts” during a federally declared disaster. The COVID-19 disaster period, as defined by FEMA, used the earliest incident date of January 20, 2020 (the date the first confirmed U.S. case was identified) and the latest incident date of May 11, 2023 (when the federal public health emergency formally ended). The national emergency itself was declared on March 13, 2020, but the FEMA disaster declaration backdated the incident period start to January 20, 2020. With a mandatory 60-day extension tacked on, the court found that the postponement period extended through July 10, 2023. That entire period must be “disregarded” when computing deadline windows — making Kwong’s February 2023 filing timely.
Critically, the court rejected the IRS’s position that its own Treasury Regulation (Treas. Reg. Sec. 301.7508A-1(g)(3)(ii)) could cap the mandatory extension at one year. The regulation stated that, even if a disaster lasted longer than 12 months, the postponement period under Section 7508A(d) could never exceed 1 year. The court said the regulation “misread” the statute — and refused to defer to it.
Why Loper Bright Made Kwong Possible
The Kwong decision did not happen in a vacuum. It was shaped in part by the Supreme Court’s June 2024 ruling in Loper Bright Enterprises v. Raimondo, which overturned the longstanding Chevron deference doctrine. Under Chevron, courts routinely deferred to federal agencies’ interpretations of ambiguous statutes — including the IRS’s reading of the tax code. After Loper Bright, courts are no longer required to give that deference. They must interpret the statute themselves based on its plain text.
This shift is exactly what the Kwong court did. Rather than accepting the IRS’s regulatory interpretation that capped disaster extensions at one year, the court read Section 7508A(d) on its own terms. It concluded that the statute imposed no such cap. The mandatory postponement period runs for the duration of the declared disaster plus 60 days — full stop.
For tax professionals, this is a significant development beyond the Kwong facts alone. Loper Bright has opened the door to challenging other IRS regulations that exceed or conflict with statutory text. Kwong is one of the first major test cases showing how that plays out in practice, and it will not be the last.
Broader Implications for Tax Filing and Payment Deadlines
While Kwong itself involved a procedural deadline for filing a refund suit, the court’s reasoning applies much more broadly. The list of “time-sensitive acts” covered by IRC Section 7508(a)(1) — which Section 7508A incorporates — includes:
- Filing returns for income, estate, gift, employment, and excise taxes
- Paying any of those taxes or installments
- Filing petitions with the Tax Court
- Filing claims for credit or refund
- Bringing refund suits
- Assessment of tax by the IRS
- Collection actions by the IRS
If filing and payment deadlines are ultimately determined to have been legally postponed through July 10, 2023, then penalties and interest that the IRS assessed for “late” filings or payments during this window could be challenged as invalid. Your clients who paid those amounts could be owed refunds. Clients who still owe them may have grounds for abatement.
Who Is Potentially Affected
The scope of potential Kwong-related relief is broader than many practitioners initially assumed:
- Individuals and businesses that incurred failure-to-file, failure-to-pay, or estimated tax penalties on obligations due between January 20, 2020, and July 10, 2023
- Taxpayers who paid underpayment interest during the same window
- Clients who underwent IRS examinations and paid assessments that included penalties and interest for pandemic-era tax years
- Taxpayers whose original due dates preceded January 20, 2020, but whose penalties and interest accrued during the disaster period — these clients may also have partial relief arguments.
- Taxpayers who received refunds during the disaster period and may be entitled to overpayment interest the IRS never paid, since the normal 45-day processing rule under IRC Section 6611(e) may have been suspended
- Businesses in active installment agreements or currently-not-collectible status, where a portion of the balance consists of penalties and interest that accrued during the disaster window
Because COVID-19 was a nationwide disaster, nearly all U.S. taxpayers met the geographic qualification requirement. This is not limited to specific FEMA-designated zones.
Important: Kwong applies only to federal IRS penalties and interest. State tax agencies operate under separate rules, and this federal court decision does not automatically extend to state-level assessments. Practitioners should evaluate state implications separately, jurisdiction by jurisdiction.
Which Tax Years Are Affected?
The return years most directly impacted are 2019, 2020, 2021, and 2022 — any return whose original filing deadline fell between January 20, 2020, and July 10, 2023. Under Kwong’s reasoning, each of those filing deadlines would have been automatically postponed to July 11, 2023.
However, the impact is not limited to those return years. Taxpayers with obligations from earlier years (2018 and prior) may also have relief arguments if penalties or interest on those older liabilities accrued during the disaster period. The key question is not only when the obligation originated, but when the penalty or interest charges accumulated.
The IRS Already Fell Short on Pandemic Penalty Relief
The Kwong ruling did not emerge from nowhere. The IRS had already acknowledged — and attempted to address — widespread pandemic-era penalty issues through Notice 2022-36, which provided automatic relief from failure-to-file penalties for certain 2019 and 2020 returns. The IRS estimated at the time that approximately 1.6 million taxpayers would receive about $1.2 billion in penalty refunds.
Kwong picks up where Notice 2022-36 left off. Where the IRS offered discretionary, limited relief, the court ruled that the statute itself mandated much broader protection — and that the IRS lacked authority to narrow it. For practitioners, this history is an important context when advising clients: even if a client already received some penalty relief under Notice 2022-36, they may still have additional refund opportunities under the Kwong theory for penalty types and tax years that the notice did not cover.
The Connection to Abdo
Kwong builds on the Tax Court’s April 2024 ruling in Abdo v. Commissioner, which addressed a related question: whether Section 7508A(d) automatically extended the deadline to file a Tax Court petition during the pandemic. The Tax Court in Abdo said yes, it did—and invalidated the IRS regulation that sought to limit the extension. Abdo was settled without appeal in late 2024.
Kwong goes further by establishing the precise dates of the COVID-19 disaster period (January 20, 2020, through July 10, 2023) and applying the mandatory extension to a broader set of deadlines. The fact that both the Tax Court (in Abdo) and the Court of Federal Claims (in Kwong) have now independently concluded that Section 7508A mandated broad, automatic deadline relief during the pandemic — and that the IRS’s regulatory cap was invalid — signals emerging judicial agreement across multiple courts, though not yet binding precedent, that bolsters taxpayers’ position. This judicial alignment across two separate courts adds considerable weight to the argument that the statute means what it says.
The Disaster-Related Extension of Deadlines Act
Adding another layer, Congress enacted the Disaster-Related Extension of Deadlines Act (P.L. 119-64), which was signed into law on December 26, 2025. This law requires the IRS to treat any disaster-related postponement of a federal tax return deadline as an extension for purposes of the refund lookback period.
Under normal rules, a refund claim must be filed within three years of the return filing date, and the refund amount is limited to taxes paid during that lookback window. The new law ensures that the disaster postponement period is included in the lookback calculation — so that taxpayers who file timely refund claims actually receive the refunds they are owed, rather than having them reduced by an artificially narrow payment window.
One important nuance: this law applies prospectively to future disasters, not retroactively to COVID-19. It does not resolve the Kwong dispute directly. But it does signal that Congress agrees the underlying problem is real — disaster-extended deadlines were creating gaps in refund eligibility — and chose to fix it going forward. That legislative endorsement of the policy principle behind Kwong may carry weight if the case reaches the Federal Circuit on appeal.
Open Questions and Risks
Significant uncertainty remains. A few of the key unresolved issues:
- Will Kwong survive appeals? The government has not yet formally appealed, but legal observers widely expect it to do so. The case would go to the U.S. Court of Appeals for the Federal Circuit.
- Scope of relief for pre-disaster obligations: Does the mandatory extension apply only to obligations that arose during the disaster period, or does it also suspend penalties and interest that accrued during the period on older tax liabilities?
- IRS audit risk: Will filing a protective claim trigger additional IRS scrutiny? Most practitioners believe the risk is low for a straightforward Form 843 filing, but it is worth discussing with clients.
- Interaction with closing and installment agreements: How does disaster relief interact with existing agreements covering pandemic-era liabilities?
- Interaction with prior penalty relief: If a client already received penalty abatement through Notice 2022-36 or a first-time abatement request, does that preclude additional relief under Kwong? In most cases, Kwong covers penalty types and periods that prior relief programs did not address — but each situation requires individual analysis.
- Potential retroactive legislation: Congress has already amended Section 7508A twice (in 2021 and 2025). Further legislative changes cannot be ruled out.
Despite this uncertainty, the risk-reward calculation for filing protective claims is clear. Filing costs relatively little and preserves optionality. Not filing forfeits the opportunity permanently.
What Tax Pros Should Be Doing Right Now
Pull IRS Account Transcripts
Review account transcripts for tax years 2019, 2020, 2021, and 2022 — the return years whose filing deadlines fell within the disaster period. Also review transcripts for any earlier years where penalty and interest charges accrued between January 20, 2020, and July 10, 2023. Flag every penalty and interest entry that posted during the disaster window.
Tax Pros: Use our IRS Advance Notice™ (IAN) transcript monitoring software solution to connect directly to the IRS Transcript Delivery System (TDS) so you can securely download and monitor the transcripts that are important to you.
File Protective Claims Using Form 843
A protective claim preserves your client’s rights while the legal landscape remains unsettled. The IRS is expected to appeal Kwong, and the Federal Circuit could overturn the decision. But failing to file before the statute of limitations expires means your clients lose the opportunity entirely — regardless of how the appeal turns out.
Here is what you need to know about preparing Form 843 for Kwong-related claims:
- File a separate Form 843 for each affected tax year. Each claim should reference the specific tax period and the specific penalty or interest type being contested.
- Cite IRC Section 7508A(d) and reference Kwong v. United States, No. 23-267 (Fed. Cl. Nov. 25, 2025) in the explanation section of the form (Line 7). Include a concise statement explaining that the COVID-19 disaster period mandated postponement of the relevant deadline through July 10, 2023, and that penalties and interest should not have accrued during that period.
- Attach relevant IRS account transcripts and notices showing the penalty and interest assessments being contested.
- If filing on behalf of a client, attach a signed Form 2848 (Power of Attorney and Declaration of Representative). The IRS will not process a Form 843 filed by a representative without a valid POA on file.
- Mail Form 843 to the IRS service center where the original return was filed. Refer to the IRS mailing address guide for Form 843 to confirm the correct address.
Filing a protective claim does not guarantee a refund, but not filing one guarantees you will not receive one. The cost of preparing and mailing a Form 843 is minimal compared to the potential recovery.
Review Active Collection Cases
If the IRS is currently pursuing collection of penalties and interest that were assessed during the disaster period, Kwong provides a basis to challenge those amounts in administrative proceedings. Before finalizing any collection resolution — especially for tax years in the 2019 through 2022 range — have the account reviewed through the lens of Kwong to determine whether any portion of the balance consists of charges that may be invalid under the court’s reasoning.
Watch the Calendar
In many cases, practitioners use July 10, 2026, as a protective filing benchmark under the Kwong interpretation, though actual statutes of limitations may vary depending on the facts of each case.
How IRS Solutions® Is Helping Members Stay Ahead
IRS Solutions is building a special report designed to identify which of your clients may be affected by the Kwong ruling. This report will analyze transcript data and flag cases where penalties and interest may have been improperly assessed during the COVID-19 disaster period.
To access the report, members must attend a training session led by IRS Solutions CEO and Co-Founder David Stone or some other course. The session covers the step-by-step process for preparing and filing Form 843 refund requests with the IRS — ensuring your claims are properly documented and positioned for success, whether the Kwong decision is upheld or further refined on appeal.
Communicate This to Your Clients — We Have the Tools Ready
The Kwong ruling is the kind of development that positions you as a proactive advisor rather than a reactive one. Your clients do not know about this. Most of them have no idea that the IRS may owe them money from the pandemic years. Reaching out now — before they hear about it from someone else — is how you deepen trust and differentiate your practice.
To make that outreach easy, IRS Solutions® is providing members with a special Marketing Toolbox kit for the Kwong ruling, including:
- Ready-to-post social media content — pre-written posts for LinkedIn, Facebook, and other channels that explain the Kwong opportunity in plain language and position your firm as the go-to resource
- A customizable client letter template — a professional, branded letter you can send to your existing client base and prospective clients, alerting them to this development and encouraging them to schedule a review
These resources are designed to save you hours of content creation while making sure the messaging is accurate, compliant, and on-brand. Watch for the Marketing Toolbox kit in your member dashboard.
This kind of proactive, high-value service sets your practice apart and deepens client trust. A single protective claim filing could recover thousands of dollars in penalties and interest for a client who had no idea they were owed anything.
The Bottom Line
The Kwong decision represents one of the most significant developments in pandemic-era tax relief to emerge in the past year. The window to act is narrow, and the potential recovery amounts are substantial — particularly for clients who resolved audits, entered installment agreements, or paid large tax liabilities between 2020 and 2023.
Review your client files. Pull transcripts. File protective claims. And do it before July 10, 2026.
Frequently Asked Questions About Kwong v. United States
Does Kwong apply to estimated tax penalties?
Potentially, yes. Estimated tax penalties under IRC Section 6654 are among the additions to tax that could be affected if the underlying payment due dates fell within the disaster period. However, this specific application has not been tested in court and may be contested administratively. Filing a protective claim preserves the argument.
Do I need to file a separate Form 843 for each tax year?
Yes. The IRS requires a separate Form 843 for each tax period for which you are requesting a refund or abatement. If a client has affected penalties across multiple years (for example, 2019, 2020, and 2021), you will need to prepare and file three separate forms.
What if my client already received a first-time penalty abatement?
If the IRS previously abated penalties through a first-time abatement, a reasonable cause waiver, or the Notice 2022-36 relief program, your client may not have an additional refund claim for those specific penalties. However, Kwong may cover penalty types and periods that prior relief did not address — particularly failure-to-pay penalties, underpayment interest, and penalties for tax years not covered by Notice 2022-36. Review each client’s situation individually.
Does Kwong apply to state tax penalties?
No. Kwong is a federal court decision interpreting a federal statute (IRC Section 7508A). State tax agencies operate under their own rules and are not bound by this ruling. Practitioners should evaluate state-level implications separately.
Is the Kwong decision final?
Not yet. Future appellate developments remain possible, including review by the U.S. Court of Appeals for the Federal Circuit. That is one reason practitioners are considering protective claims now: they may preserve a client’s position while the law continues to develop.
What if my client currently owes the IRS and is in an installment agreement?
Review the account transcript to determine whether any portion of the outstanding balance consists of penalties and interest that accrued during the disaster period. If so, Kwong may provide grounds to challenge those charges and reduce the overall balance. Each case should be evaluated before finalizing any new collection resolution.
How much could clients recover?
Recovery amounts vary widely depending on the size of the original tax liability, the number of affected tax years, and the types of penalties and interest assessed. Taxpayers with larger liabilities and substantial penalty or interest assessments may have larger amounts at stake. For individuals, the dollars at issue may range from modest amounts to more substantial sums depending on the facts.
Will filing a protective claim trigger an IRS audit?
A Form 843 filing does not automatically mean a full Examination, but the IRS may request additional support for the claim. However, the IRS may request additional documentation in support of the claim. Having well-organized transcripts and a clearly cited legal basis in the Form 843 minimizes the risk of complications.
What is the deadline to file?
For many claims, July 10, 2026, may be an important protective benchmark under Kwong-related theories. Still, actual deadlines can vary based on the taxpayer’s facts, including payment dates and the applicable limitations framework. In some cases, waiting beyond that point could jeopardize or eliminate the claim, so limitations analysis should be conducted early.
This material is for educational and informational purposes only and is not legal or tax advice. Kwong is a Court of Federal Claims decision, not binding in all forums, and further appeals, IRS guidance, or legislation could affect the analysis. Filing deadlines and merits issues are highly fact-dependent. Practitioners should verify all limitations periods, transcript data, and procedural requirements before filing any claim.
