A recent decision by the U.S. Court of Federal Claims, in the case Kwong v. United States, may provide an opportunity for certain taxpayers to seek refunds from the IRS for penalties and interest charged during the COVID-19 pandemic disaster period. This ruling essentially challenges the IRS’s authority to impose penalties and/or interest during the designated COVID-19 period of January 20, 2020 through July 10, 2023.
The IRS has appealed the court’s ruling. But, in order to preserve the right to a refund, affected taxpayers may be unaware of the need to file a claim for refund or abatement by July 10, 2026.
Understanding Kwong v. United States and Its Impact on Taxpayers
The Kwong case raises broader questions about what federally declared disasters mean for tax deadlines and who has the authority to set the standards for relief.
The case originated when taxpayer Terry Kwong filed refund claims for penalties assessed during the pandemic period. The IRS denied those claims as untimely, but the U.S. Court of Federal Claims ruled in Kwong’s favor, applying the plain-text language of the Internal Revenue Code (IRC). This IRC language stands for the proposition that certain federal filing and payment deadlines were extended for the full duration of a federally declared disaster, plus an additional 60 days. For COVID-19, this period ran from January 20, 2020, to May 11, 2023, resulting in a deadline extension to July 10, 2023.
Because the relief is considered to extend through July 10, 2023, the three-year statute of limitations for many claims begins to run from that date, making July 10, 2026, a crucial deadline.
Who Can Benefit From the Kwong case?
Taxpayers should evaluate a potential benefit if they:
- paid penalties for underpayments of estimated tax that are applicable for the above period, whether payment was made during or after this period;
- paid failure to file and/or failure to pay penalties that accrued during the above period whether payment was made during or after this period;
- paid interest on any tax deficiency or penalties asserted that accrued during the above period, whether payment was made during or after this period;
- are currently contesting the interest and penalties in a dispute with the IRS and the amounts are, as yet, unpaid;
- are due an income tax refund for a tax year and cannot access it as the normal Statute of Limitations period has expired.
How to File a Protective Claim
BPM recommends all claims be filed as protective claims. Designating a claim as protective helps preserve the applicable statute of limitations while the appeals process and any related litigation proceed. Taxpayer should note, however, that a protective refund claim must ultimately be perfected.
How BPM Can Help
BPM is actively monitoring developments in Kwong v. United States and can help businesses and individuals assess their COVID-era penalty exposure, prepare Protective Claim filings and/or amended returns, and evaluate how the ruling may affect them with respect to ongoing IRS examinations.
Please reach out to your BPM tax services team and discuss your situation well before July 10, 2026.
