A recent federal court decision may reopen the door to refunds of COVID-era tax interest and penalties that many taxpayers assumed were lost for good. In Kwong v. United States, No. 23 267 (Fed. Cl. Nov. 25, 2025), the U.S. Court of Federal Claims held that the COVID-19 disaster declaration triggered a mandatory suspension of certain federal tax deadlines under §7508A(d) as it existed at the time the disaster was declared. The decision potentially allows refunds of interest and penalties assessed during the COVID-19 disaster period and supports the position that refund claims and refund suits may be timely if filed within the extended statutory periods resulting from that suspension.
The court’s decision directly addressed the two year statute of limitations for refund suits under §6532(a). However, the court’s reasoning — specifically its interpretation of §7508A(d) — also supports the conclusion that the disaster suspension period must be disregarded when computing other tax related deadlines under §7508A, including deadlines relevant to refund claims for interest and penalties assessed during the disaster period.
Statutory Background and Disaster Period
At the time COVID-19 was declared a presidential disaster, §7508A(d) provided a mandatory postponement of certain tax deadlines beginning on the earliest incident date of the disaster and ending 60 days after the disaster incident period closed.
On March 13, 2020, President Donald Trump declared the COVID-19 outbreak a national emergency under the Stafford Act. The declaration stated that the emergency was deemed to have begun on January 20, 2020. Although the COVID-19 emergency initially had no fixed end date, the Federal Emergency Management Agency later designated May 11, 2023, as the closing date of the COVID-19 incident period for all major disaster declarations.
As a result, under §7508A(d), the mandatory postponement period ran from January 20, 2020, through July 10, 2023 (i.e., 60 days after May 11, 2023).
The COVID-19 disaster declaration lasted more than three years, making it unprecedented in duration. Applying §7508A(d) as written, taxpayers were entitled to a statutorily mandated suspension of applicable deadlines throughout that period.
Effect of Kwong
Based on Kwong, the IRS must disregard the period from January 20, 2020, through July 10, 2023, when computing deadlines that fall within the scope of §7508A(d). Importantly, IRS Notices 2020 17, 2020 18, and related administrative relief are irrelevant to this statutory analysis, because Kwong held that the mandatory suspension arises directly from the statute — not from discretionary IRS guidance.
As a result, the disaster period is excluded for purposes of:
- Filing federal income, estate, gift, employment and excise tax returns.
- Paying income, estate, gift, employment and excise taxes, including installments and other federal tax liabilities.
- Calculating interest, penalties, additions to tax or additional amounts attributable to periods after January 20, 2020.
- Filing claims for credit or refund to the extent such claims are governed by deadlines subject to §7508A(d).
- Bringing suit on such refund claims.
Example
Assume a calendar year corporate taxpayer’s 2020 federal income tax balance was due on April 15, 2021, but the corporation did not pay the balance until August 1, 2022. The IRS assessed failure-to-pay penalties and underpayment interest from April 15, 2021, to August 1, 2022.
Under Kwong, the taxpayer’s payment due date fell squarely within the COVID-19 disaster suspension period – January 20, 2020, through July 10, 2023; thus, §7508A(d) requires that period to be disregarded, and any assessment of failure-to-pay penalties and underpayment interest would be improper.
Accordingly, the taxpayer may consider filing a refund claim for the assessed interest and penalties.
Refund Claim Timing
Under §6511(a), a refund claim generally must be filed within three years from the time the return was filed, or two years from the time the tax was paid, whichever is later. If a return is filed on or before its due date, the filing date is treated as the due date.
Applying Kwong, where a return due date fell within the COVID-19 disaster suspension period, that due date is treated as occurring no earlier than July 10, 2023. On that basis, a refund claim filed on or before July 10, 2026, may be timely, depending on the specific facts and the interaction of §§6511 and 7508A(d).
Government’s Argument Rejected
The government argued that §7508A was amended in November 2021 to limit the mandatory suspension to 60 days from the beginning of a disaster. The court rejected that argument, explaining that the amendment applies only to disasters declared after the amendment’s effective date. Because the COVID-19 disaster was declared on March 13, 2020, the amendment was inapplicable.
Regulations
The U.S. Court of Federal Claims further rejected the government’s reliance on its interpretation of Treasury Regulation §301.7508A 1(g)(3)(ii), holding that the IRS’s interpretation of the statute was not controlling and that courts must exercise independent judgment in determining whether an agency has acted within its statutory authority.
Notably, Treasury Regulation §301.7508A 1(g) had already been held invalid in Abdo v. Commissioner, 162 T.C. No. 7 (2024). Both Kwong and Abdo held that §7508A(d) automatically postponed certain deadlines, although Abdo did not address the termination date of the COVID-19 disaster period.
Takeaway
Taxpayers who were assessed interest or penalties attributable to filing or payment obligations that fell between January 20, 2020, and July 10, 2023, should evaluate whether those assessments were improper under Kwong and whether refund claims or refund suits remain timely.
Contact Us
If you are a taxpayer affected by interest or penalties assessed during this period, please contact our Business Tax Services Team discuss potential refund opportunities.
