A recent federal court case, Kwong v. United States, may create a refund opportunity for taxpayers who incurred certain IRS penalties or interest during the COVID-19 pandemic period.
What Is the Kwong Case?
In Kwong v. United States, the U.S. Court of Federal Claims held that federal tax deadlines may have been automatically postponed during the COVID-19 federal disaster period — from January 20, 2020 through July 10, 2023 — under Internal Revenue Code Section 7508A(d). As a result, certain IRS penalties and interest may not have been properly assessed during that timeframe.
Why This Matters
Taxpayers who incurred:
- Failure-to-file penalties
- Failure-to-pay penalties
- Payroll tax penalties
- IRS interest charges
During 2020–2023 may be entitled to refunds or abatements if the decision is ultimately upheld.
Who May Be Affected?
This may apply to:
- Individuals with IRS penalties assessed during the pandemic period
- Businesses with payroll or income tax penalties
- Taxpayers with significant IRS interest charges
- Taxpayers affected by COVID-related filing or payment delays
Recommended Action
- Review IRS notices and account transcripts for penalties and interest assessed between January 20, 2020 and July 10, 2023
- Identify penalties or interest already paid versus amounts still outstanding
- Consider filing a protective refund claim to preserve refund rights before statutes of limitation expire
A protective refund claim is a formal filing with the IRS that preserves a taxpayer’s ability to request a refund while the Kwong litigation remains unresolved.
The decision is not yet final and may be appealed; however, some refund deadlines could begin expiring as early as July 10, 2026.
If you believe you may be affected, please contact our office to discuss whether filing a protective claim makes sense in your situation.
References:
https://www.aicpa-cima.com/resources/article/kwong-v-united-states-frequently-asked-questions-faqs
Claire Chow, Tax Team Partner
