Kwong Decision Creates Refund Opportunity: IRS COVID-19-Related Protective Claims Due July 10

Recent legal developments may create a significant but time-sensitive refund or abatement opportunity for taxpayers that were assessed and paid certain federal tax penalties and interest during the COVID-19 federal disaster period. The National Taxpayer Advocate has warned that “tens of millions” of taxpayers may be entitled to refunds or abatements of COVID-19 period penalties and interest, but that relief generally will not be automatic, and most affected taxpayers must file refund claims by July 10, 2026, to protect their rights.¹

The opportunity arises based on the United States Tax Court decision in Abdo v. Commissioner, 162 TC 148 (2024), and the U.S. Court of Federal Claims’ decision in Kwong v. United States, 179 Fed. Cl. 382 (2025). Both cases interpreted the 2019 version of Internal Revenue Code Section 7508A(d) and held that the mandatory disaster postponement provision commenced when the COVID-19 federal disaster was declared on January 20, 2020. In Abdo, the court held that the 2019 version of Section 7508A(d) provided for an automatic and mandatory postponement period that commenced on January 20, 2020, and extended for at least 60 days, which permitted the taxpayer to file a U.S. Tax Court petition as a result of the postponement period. Absent the postponement, the U.S. Tax Court petition would not have been timely. The court also invalidated Treasury regulations to the extent they limited the mandatory postponement to acts the Secretary had separately postponed under Section 7508A(a). The IRS did not appeal the decision in Abdo. 

In Kwong, the court held that the mandatory postponement period for the COVID-19 disaster began on January 20, 2020, and ended on July 10, 2023, which was 60 days after the May 11, 2023, end of the COVID-19 disaster period. The postponement enabled the taxpayer to file a claim for refund for penalties paid with respect to the COVID-19 disaster period. Under that reasoning, tax filing and payment deadlines falling within the COVID-19 disaster period were postponed from January 20, 2020, until July 10, 2023, potentially affecting penalties, interest, refund claim deadlines, and refund suit deadlines.

Although Kwong is favorable to taxpayers, the IRS has appealed the decision and the issue remains unsettled. Accordingly, taxpayers should evaluate potential claims now because the law may remain unsettled while refund limitation periods continue to run and in certain cases may expire after July 10, 2026.

Background: Section 7508A(d) and the COVID-19 Disaster Period

Section 7508A generally authorizes the Secretary of the Treasury to postpone certain tax-related deadlines for taxpayers affected by federally declared disasters and to disregard the postponement period in determining interest, penalties, additions to tax, and the amount of any credit or refund. Congress added a mandatory postponement rule in 2019, and the Court of Federal Claims in Kwong held that the 2019 version of Section 7508A(d)—not the narrower 2021 amendment to Section 7508A that became effective on November 15, 2021—governs the COVID-19 disaster period. Under the 2019 version of Section 7508A, the mandatory period ran from “the earliest incident date” specified in the disaster declaration to “60 days after the latest incident date,” and Kwong concluded that the COVID-19 disaster period began on January 20, 2020, and ended May 11, 2023, with the additional 60 days extending the date to July 10, 2023.

What Relief May Be Available

Under the reasoning of Kwong, taxpayers may file claims for refund or claims for abatement of penalties assessed for failure to timely file returns, failure to pay taxes, or failure to make estimated tax payments during the COVID-19 disaster period. Taxpayers may also have claims for refund or claims for abatement for interest that began accruing during the COVID-19 disaster period. The National Taxpayer Advocate has described the affected population as including individuals, small businesses, large corporations, estates, and trusts, and has stated that the issue may reach income, employment, estate, gift, and excise tax obligations.

We have included with this advisory a filing matrix that describes the key issues related to a claim for refund and a claim for abatement. A claim for refund is the recommended action when penalties and interest related to the COVID-19 disaster period have been paid and a taxpayer is claiming a refund for the amounts paid. There are two forms of a claim for refund. First, a formal claim for refund is appropriate when the taxpayer can reasonably determine the refund amount sought. Second, a protective claim for refund is appropriate when the taxpayer’s right to a refund depends on a future event, such as final resolution of the Kwong litigation, new IRS guidance, or another legal development. The IRS Internal Revenue Manual describes protective claims as claims filed to preserve the taxpayer’s right to a refund when the right to the refund is contingent on future events and may not be determinable until after the statute of limitations expires. Most claims for refund based on the reasoning of Kwong will be protective claims for refund and are filed after the conclusion of an audit or a court proceeding and payment of the assessed penalties and interest. A claim for refund allows a taxpayer to file litigation in federal courts as part of the refund process.

A claim for abatement applies when the tax, penalty, and interest are not yet assessed, or if the tax, penalty, and interest are assessed, the taxpayer has not yet paid the amount due. A claim for abatement will typically be filed based on the reasoning of Kwong either during an IRS audit (at the examination or Appeals levels or in a U.S. Tax Court proceeding related to the audit), or during an IRS collection proceeding (at the Revenue Officer or Appeals levels or possibly in a U.S. Tax Court proceeding related to the collection action). The key aspect of the claim for refund is that the taxpayer has not yet paid the amount due. 

Some positions remain more uncertain than others. The National Taxpayer Advocate has noted that some practitioners believe relief may extend to interest and penalties accruing during the COVID-19 disaster period even where the underlying liability arose before January 20, 2020, but also noted that the IRS disagrees and that Kwong did not address pre-disaster delinquencies. These claims may warrant closer factual and procedural analysis before filing. Our view is that the Kwong analysis is not limited to tax returns filed during the COVID-19 disaster period, but that the analysis also applies to any penalties and interest imposed during the COVID-19 disaster period regardless of the tax year.

When Taxpayers Should File a Claim for Refund

The general refund claim rule is that a taxpayer must file a claim within the later of three years from the date the return was filed or two years from the date of payment. Where a return was filed before its due date, the early filing date generally does not start the three-year claim period early because the return is generally treated as filed on its due date. Under the Kwong reasoning, most taxpayers seeking COVID-19 disaster period refunds generally must file a claim for refund by July 10, 2026, to protect their rights and returns, and payments due during the COVID-19 disaster period are to be treated as timely until July 10, 2023. This means that the three-year refund claim period would generally run until July 10, 2026. Taxpayers should not assume, however, that July 10, 2026, is the only relevant deadline. The two-year period from the payment date may provide a later deadline depending on when penalties and/or interest were paid. Conversely, some claims may be subject to different procedural rules, including claims for additional overpayment interest and refund suits following IRS disallowance. It is likely that a protective claim for refund based on the Kwong decision will not be acted on by the IRS until the litigation is finally resolved, but the filing of a timely protective claim for refund will suspend the statute of limitations on the ability of a taxpayer to bring refund litigation until the IRS does respond to the potential claim for refund.

When Taxpayers Should File a Claim for Abatement

The claim for refund period described above does not apply to a claim for abatement because the tax, penalty, and interest have not yet been paid. This means that no action is required on or before July 10, 2026, for a claim for abatement with respect to the COVID-19 disaster period. If the IRS is currently taking collection action, we recommend filing a claim for abatement and providing a copy of the claim for abatement to the person at the IRS handling the collection action. If the IRS is not currently taking collection action, you might want to consider waiting until the Kwong case is finally resolved and then making a claim at the conclusion of the Kwong case assuming the decision is in the favor of the taxpayer. Taxpayers with ongoing examinations, Appeals proceedings, or litigation should evaluate how the Kwong issue affects settlement posture, refund protection, and litigation strategy. The reasoning of Kwong should also allow a claim for abatement if a taxpayer has paid the tax, penalty, and interest but the taxpayer did not timely file a claim for refund.

What Taxpayers Should Review Now

Taxpayers should begin by reviewing IRS account transcripts for the relevant years and entities. The National Taxpayer Advocate has stated that transcripts are a practical starting point because they show when returns were filed, when tax was assessed, payments and credits, penalties and interest charged, and refunds issued. Taxpayers should focus on penalties and interest, the dates associated with those charges, and whether those dates fall within the January 20, 2020 through July 10, 2023 COVID-19 disaster period.

For many taxpayers, the principal years to review will be 2019 through 2022, because standard filing and payment deadlines for many returns for those tax years fall within the COVID-19 disaster period. Taxpayers should also review non-income tax accounts where applicable, because the National Taxpayer Advocate has indicated that employment, estate, gift, and excise tax obligations may be affected. Taxpayers should be especially attentive to late filing penalties, late payment penalties, estimated tax penalties, underpayment interest, and interest or penalty accruals that appear to have run during the COVID-19 disaster period.

The National Taxpayer Advocate has also stated that the issue may affect taxpayers who filed late international information returns, which can result in significant penalties even when no tax is due. International information return penalties require separate consideration and should be analyzed independently.

How to File: Formal Claims, Protective Claims, and Abatement Requests

For claims seeking refunds or abatements of penalties and interest, the principal filing vehicle will generally be IRS Form 843, Claim for Refund and Request for Abatement. If the taxpayer is changing underlying income, deductions, credits, filing status, dependents, or tax liability, an amended return may be required instead of, or in addition to, Form 843.

As we previously suggested, most claims for refund based on the Kwong decision should be filed as a protective claim for refund. The protective claim for refund should be in writing and signed, identify the taxpayer by name, address, taxpayer identification number, and contact information, describe the legal issue affecting the claim, alert the IRS to the basis of the claim, and identify the specific tax year involved. The National Taxpayer Advocate recommends writing “Protective Refund Claim Pursuant to Kwong Case” or similar language across the top of Form 843 and filling in as much detail as possible. Taxpayers should file a separate Form 843 for each tax period and each type of tax, rather than combining multiple years or unrelated issues on one Form 843.

Taxpayers should keep complete copies of all filings and use a mailing method that provides proof of timely filing. The instructions to Form 843 specify where Form 843 should be filed and in the case of penalties and interest for income tax, Form 843 should generally be mailed to the IRS service center where the taxpayer would file a current-year return for the tax involved.

Practical Takeaways

Taxpayers that paid or were assessed federal penalties or interest for filing, payment, or estimated tax issues during the COVID-19 disaster period should promptly evaluate whether a claim for refund or abatement is warranted. Taxpayers with material potential refunds should consider filing a formal claim if the amount can be calculated, or a protective claim if the amount or entitlement depends on the final resolution of Kwong. Taxpayers that have not paid the assessed amounts should evaluate a claim for abatement, while recognizing that collection activity may continue unless the matter is otherwise suspended or resolved.

The safest planning assumption for many affected taxpayers is that claims for refund should be filed by July 10, 2026, with respect to the COVID-19 disaster period, unless a careful limitations analysis supports a later or earlier date. Filing a protective claim for refund does not guarantee recovery because the government has filed an appeal in Kwong and the IRS may continue to disagree with Kwong, but filing may preserve the taxpayer’s ability to benefit if the taxpayer-favorable interpretation is ultimately sustained. Waiting for final legal certainty may cause taxpayers to lose the opportunity entirely because the claim deadline may expire before the appellate process or IRS guidance is complete.

Taxpayers should treat this as a procedural preservation issue as much as a substantive refund or abatement opportunity. The immediate task is not to assume that every COVID-19 disaster period assessment is refundable, but to identify affected periods, determine whether penalties or interest were paid or remain unpaid, calculate or describe the claim, and timely file the appropriate formal or protective claim or claim for abatement. For taxpayers with significant penalties, interest, or ongoing disputes, the cost of acting now may be justified by the risk that no refund or abatement will be available if the claim is not preserved before the applicable limitations period expires.

This advisory is for general informational purposes only and does not constitute legal or tax advice. Taxpayers should evaluate their specific facts, tax periods, payment dates, procedural posture, and applicable limitation periods before filing any refund claim, protective claim, or abatement request.

References:

1. Tens of Millions of Taxpayers May Be Eligible for Significant Tax Refunds – If They Act on or before July 10 (Part I)

Kwong Filing Matrix: Claim for Refund or Abatement

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