In _Kwong v United States_, the U.S. Court of Federal Claims ruled that certain federal tax deadlines were automatically paused during the COVID-19 national emergency, potentially from January 20, 2020, through July 10, 2023. The decision has drawn attention across the tax community because it could entitle taxpayers to refunds of penalties and interest assessed during that window. For businesses and individuals who paid failure-to-file or failure-to-pay penalties in recent years, the Kwong COVID tax penalty refund path may represent a meaningful financial recovery opportunity.
This article answers one central question: can you recover tax penalties and interest paid during the COVID period under the Kwong reasoning, and how would you go about it? Below, we explain the decision, the COVID tax deadline relief it suggests, and the concrete steps taxpayers should consider, including whether to file a protective refund claim while the legal landscape develops.
What Happened in the Kwong v United States Case
The Kwong v United States case centered on a taxpayer who sued the federal government for a tax refund after the IRS denied a refund claim. The government’s core argument was straightforward: under Internal Revenue Code Section 6532, a taxpayer generally has two years from the date the IRS mails a disallowance notice to file a refund suit. The government contended the taxpayer missed that window.
The taxpayer countered by invoking Code Section 7508A, the federal disaster-relief statute that authorizes the postponement of certain tax deadlines during a declared disaster. The taxpayer argued that the two-year litigation clock was paused for the entire duration of the COVID-19 disaster period.
The court agreed. It held that pandemic-era amendments to Section 7508A operated automatically, meaning the suspension applied by force of statute rather than by individual IRS action. Under this reading, the disaster period ran from January 20, 2020, through May 11, 2023, plus an additional 60 days built into the statute, potentially extending the suspension through July 10, 2023.
This interpretation matters because it is far broader than the targeted deadline extensions the IRS issued during COVID. While those IRS notices postponed specific filing and payment deadlines for defined time windows, the court’s reading of Section 7508A suggests a sweeping, multi-year suspension of many statutory tax deadlines.
How COVID Tax Deadline Relief Could Trigger Penalty Refunds
The most immediate practical impact of the Kwong v United States ruling concerns penalties assessed during the suspension period. If certain statutory deadlines were legally paused from January 2020 through July 2023, penalties that depend on those deadlines, such as late-filing and late-payment penalties, may not have been validly imposed.
Taxpayers who paid the following types of penalties during the COVID disaster window may have grounds for a Kwong IRS refund claim:
- Failure-to-file penalties imposed under IRC Section 6651(a)(1), which apply when a return is filed after its due date.
- Failure-to-pay penalties under IRC Section 6651(a)(2), assessed when tax is not paid by the statutory deadline.
- Interest charges and additions to tax that accrued specifically because a filing or payment was treated as late during the suspension period.
The dollar amounts can be substantial. According to the IRS failure to file penalty guidance, the failure-to-file penalty accrues at 5% of unpaid tax per month, up to a maximum of 25%. The failure-to-pay penalty runs at 0.5% per month. For taxpayers who carried significant balances during the January 2020 to July 2023 window, refund opportunities could reach into the thousands or tens of thousands of dollars.
This is not a blanket refund ruling. Each taxpayer’s situation depends on the specific deadlines, penalty types, and amounts involved. The decision provides a legal theory, not an automatic check in the mail. Businesses weighing the cost and benefit of pursuing a claim often benefit from coordinated tax advisory services before committing time to the filing.
Expanded Limitation Periods and Statutory Clock Extensions
Beyond penalty refunds, the Kwong decision could extend a wide range of statutory time limits, the “clocks” that govern when taxpayers and the IRS must act. If the court’s reasoning is applied broadly, the COVID disaster period effectively adds more than three years to many statutory deadlines.
The types of limitation periods potentially affected include:
- Administrative refund claim deadlines. Taxpayers generally must file a refund claim within three years of filing the return or two years of paying the tax. A multi-year suspension could reopen windows that taxpayers assumed had closed.
- Tax election deadlines. Certain elections, such as the election to carry back a net operating loss, must be made within a specific statutory timeframe. Kwong’s reasoning could extend those deadlines.
- Refund litigation deadlines. This was the specific issue in Kwong itself. The two-year window to file a refund suit after an IRS disallowance could be extended by the full disaster period.
- Other time-sensitive statutory acts. Any obligation or right governed by an Internal Revenue Code deadline could potentially be affected.
Taxpayers who believed a deadline had expired should revisit that conclusion. The practical availability of these extensions, however, depends on whether other courts adopt the Kwong interpretation.
Why the Kwong Ruling May Face Legal Challenges
The Kwong v United States decision is notable precisely because it diverges from the IRS’s own understanding of the scope of COVID tax deadline relief. During the pandemic, the IRS issued a series of notices, including Notice 2020-23 and Notice 2021-21, that postponed specific deadlines for limited time periods. The IRS treated these targeted postponements as the full extent of disaster relief available under Section 7508A.
The court rejected that position. It held that Congress’s statutory text, as amended for the pandemic, operates independently of IRS administrative guidance. Even if the IRS chose to postpone only certain deadlines for defined windows, the statute itself may have suspended a broader set of deadlines for the entire disaster period.
The government is likely to contest this interpretation in future cases for several reasons:
- Revenue impact. A broad suspension could expose the government to significant refund claims across millions of taxpayers.
- Precedential scope. The Court of Federal Claims is a trial-level court. Its decisions are not binding on the Tax Court, federal district courts, or courts of appeal. Other courts may reach different conclusions.
- IRS administrative position. The IRS may argue that its contemporaneous guidance, issued while the emergency was active, reflects the correct reading of the statute’s scope and intent.
Taxpayers should expect that claims based on Kwong will be scrutinized carefully and may require administrative appeals or litigation to resolve.
How to File a Protective Refund Claim Under the Kwong Theory
Taxpayers who believe they may benefit from the Kwong reasoning should consider filing a protective refund claim with the IRS. A protective claim preserves a taxpayer’s rights while the legal issue remains unsettled. It puts the IRS on notice that a refund is being sought, without requiring the taxpayer to prove every detail immediately.
Here is a practical roadmap:
Identify your exposure and gather documentation
Review whether you were assessed failure-to-file penalties, failure-to-pay penalties, or interest that accrued because a filing or payment was treated as late between January 20, 2020, and July 10, 2023. Pull IRS notices, account transcripts (available through the IRS online portal or by filing Form 4506-T), penalty computations, and proof of payment. You need to tie specific dollar amounts to specific statutory deadlines that fell within the disaster period.
File IRS Form 843 with a Kwong reference
IRS Form 843, “Claim for Refund and Request for Abatement,” is the standard vehicle for requesting a refund of penalties and certain other amounts. On the form, reference the Kwong v United States decision and Section 7508A as the basis for your claim. Be specific about the penalty types, tax periods, and dollar amounts involved.
Include a protective claim statement
If timing is tight or the law is unsettled, explicitly state that the claim is being filed on a protective basis pending resolution of the legal issue. This preserves your statute of limitations for filing.
Anticipate the IRS response
The IRS may deny the claim based on its narrower interpretation of Section 7508A. A denial is not the end of the road. It starts the clock on the two-year window to file a refund suit in federal court, which itself may be extended under Kwong’s reasoning.
Working with a qualified tax professional throughout this process is strongly advisable. The intersection of penalty computation, limitation periods, and protective filing requirements requires experienced guidance, and our accounting services team can help quantify exposure and prepare the filing.
What Taxpayers Should Do Right Now
The Kwong v United States decision is still developing, and no taxpayer should assume the issue is settled. Waiting for final resolution carries its own risks, because refund claim deadlines can expire and the protective filing window is not unlimited.
Timing is the critical factor. Several commentators reading the Kwong decision point to July 10, 2026, as a key date, on the theory that the disaster period suspension ran through July 10, 2023, and the underlying limitation periods are measured from there. Taxpayers who believe they have a claim tied to the COVID disaster window should not assume time is on their side. Because today’s date already sits close to that period, anyone considering a protective claim should evaluate it promptly rather than wait for higher courts to weigh in.
Audit your penalty history and quantify potential refunds
Request IRS account transcripts for tax years 2019 through 2022 and review whether penalties or interest were assessed during the January 2020 to July 2023 window. Calculate the total penalties and interest paid that could be attributable to suspended deadlines. This determines whether the effort of filing a claim is worthwhile.
Consult a tax advisor and act before deadlines close
The Kwong theory involves nuanced legal analysis that varies by taxpayer situation. A CPA or tax attorney can evaluate whether your specific facts support a claim and whether a protective filing is appropriate. Even if the Kwong reasoning extends certain limitation periods, relying on that extension adds uncertainty. Filing sooner removes the risk that a court later narrows the suspension window.
Frequently Asked Questions
What is the Kwong v United States case about?
Kwong v United States is a 2025 decision from the U.S. Court of Federal Claims holding that certain federal tax deadlines were automatically suspended during the COVID-19 disaster period under IRC Section 7508A. The court found the suspension ran from January 20, 2020, through approximately July 10, 2023, potentially giving taxpayers additional time to file refund claims and take other time-sensitive tax actions.
Can I get a refund for tax penalties paid during COVID?
You may be able to claim a refund for failure-to-file penalties, failure-to-pay penalties, and related interest assessed between January 2020 and July 2023 if the underlying statutory deadline was suspended under the Kwong court’s reading of Section 7508A. Each claim depends on specific facts, penalty types, and amounts. Filing IRS Form 843 with a reference to Kwong is the standard starting point.
What is a protective refund claim and should I file one?
A protective refund claim is a filing that preserves your right to a refund while a legal issue, such as the scope of Kwong, remains unsettled. It tells the IRS you are seeking a refund based on a specific legal theory without requiring full documentation immediately. If you paid meaningful penalties during the COVID disaster period and refund deadlines may be approaching, a protective claim can safeguard your position. Many practitioners reading Kwong have flagged July 10, 2026, as an important deadline for preserving these claims, which makes a prompt review worthwhile.
What is IRS Form 843 and when should I use it?
IRS Form 843 is the official form for requesting a refund of penalties, interest, or certain other tax amounts. You should use it when you believe a penalty was incorrectly assessed or when you have a legal basis, such as the Kwong decision, for abatement. The form requires you to specify the tax type, period, and the reason for your refund request.
Does the Kwong ruling apply to all taxpayers?
The Kwong ruling does not automatically apply to everyone. It is a trial-level decision from one federal court, and other courts may interpret Section 7508A differently. The IRS may also deny claims based on its own narrower reading of COVID disaster relief. However, any taxpayer who paid penalties tied to statutory deadlines during the January 2020 to July 2023 period should evaluate whether the ruling is relevant to their situation.
Will the IRS accept refund claims based on Kwong v United States?
The IRS has not indicated it will voluntarily adopt the Kwong interpretation. Taxpayers who file refund claims citing this decision should expect potential denial and be prepared to pursue administrative appeals or federal court litigation. Filing a protective claim preserves your rights while the legal question is resolved across multiple courts.
