Key Takeaway: A recent Court of Federal Claims decision may give millions of taxpayers until July 10, 2026, to seek refunds of penalties and interest assessed during the COVID-19 national emergency. Taxpayers should evaluate whether protective claims are warranted before that deadline.
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Millions of taxpayers may have a narrow window to seek refunds of penalties and interest assessed during the COVID-19 pandemic. In Kwong v. United States, Judge Stilfen of the United States Court of Federal Claims ("CFC") held that the 2019 version of IRC § 7508A(d) automatically extended the taxpayer's deadline under § 6532(a) to file a refund suit, concluding that the COVID-19 mandatory postponement period ran from January 20, 2020, through July 10, 2023.
The Kwong Decision and Its Legal Basis
The CFC interpreted § 7508A(d) broadly. As it existed in 2019, the statute disregards the period "beginning on the earliest incident date specified in the [disaster] declaration . . . and ending on the date which is 60 days after the latest incident date so specified." Applying that language to the COVID-19 national emergency, the court concluded that tax-related deadlines were postponed for the entirety of the disaster incident period (January 20, 2020, to May 11, 2023) plus 60 days—making Mr. Kwong's February 2023 refund suit timely under § 6532(a), even though his notices of disallowance had been issued more than two years earlier. Notably, the court rejected Treasury Regulation § 301.7508A-1(g)(3)(ii), which caps the mandatory postponement period at one year, and—citing the Supreme Court's decision in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024)—declined to defer to the IRS's interpretation of the statute. The decision builds on a unanimous Tax Court ruling in Abdo v. Commissioner, 162 T.C. 148 (2024), which held that § 7508A(d) provides for "an unambiguously self-executing postponement period."
The IRS has appealed the Kwong decision to the Court of Appeals for the Federal Circuit, and the outcome remains uncertain. However, if courts extend the Kwong rationale beyond the refund-suit context, taxpayers may have grounds to challenge penalty and interest computations tied to postponed deadlines. In the meantime, the decision has prompted significant discussion among tax practitioners about whether taxpayers with COVID-period penalty assessments should pursue refund, abatement, or protective claim opportunities now.
Key Deadlines for Refund Claims
Under IRC § 6511(a), refund claims generally must be filed within three years from the original filing deadline or two years from the date of payment, whichever expires later. If the Kwong ruling survives appeal, the three-year claim period may expire on July 10, 2026—a date the National Taxpayer Advocate has flagged as a critical outer deadline in its April and May 2026 blog posts.
Not every claim will share that deadline. Some penalty or interest claims may turn on the alternative two-year-from-payment period. Additionally, IRC § 6511(b)(2)(A) limits refund recoveries to amounts paid within the two years before the claim is filed when the claim is made more than three years after the original return due date. However, new Section 7508A(f), enacted as part of the Disaster Related Extension of Deadlines Act (P.L. 119-64) and effective for claims filed after December 26, 2025, aligns the § 7508A(d) filing extension with the § 6511(b)(2)(A) lookback rule. As a result, where § 7508A(d) applies, a timely refund claim may recover payments that would otherwise fall outside the ordinary two-year lookback window.
Next Steps
Taxpayers who may benefit from the Kwong holding should consider taking the following steps before July 10, 2026: (1) identify affected tax years and payments by reviewing all years in which underpayment interest, failure-to-file penalties, or failure-to-pay penalties were assessed during the period from January 20, 2020 through July 10, 2023; (2) calculate potential refund amounts; and (3) file protective refund claims where appropriate to preserve rights pending the outcome of the government's appeal.
Saul Ewing's Tax Controversy team is available to help evaluate your exposure, identify payments eligible for review, and prepare and file appropriate claims. If you have questions about how the Kwong decision may affect your tax position, please contact the authors of this alert or your regular Saul Ewing attorney.
