The IRS Appeals Kwong: What It Means for Taxpayers, COVID-Era Interest and Penalty Relief and Why Waiting May Be Risky

The appeal many expected has arrived, but the real question is what comes next.

For months, taxpayers and practitioners have wondered whether the IRS would ultimately accept the implications of Kwong v. United States or continue defending its interpretation of the COVID-era relief provisions under IRC §7508A(d). We now have part of that answer.

The government has filed a Notice of Appeal in Kwong, signaling that the IRS intends to continue litigating the issue rather than allowing the Court of Federal Claims’ decision to stand without challenge.

While there is still much we do not know, such as the precise legal arguments the IRS will make when it files its appellate brief, or how aggressively it will seek to defend its interpretation of §7508A(d), what we do know is this: the controversy continues. And taxpayers who have claims should not assume time is on their side.

The decision potentially affects:

Whether underpayment interest properly accrued during portions of the COVID disaster period.
Whether certain penalties were appropriately assessed.
Whether taxpayers are entitled to refunds of previously paid amounts.
Whether assessed but unpaid liabilities may be subject to challenge or abatement.

In practical terms, Kwong, together with related developments such as Abdo v. United States, creates potential opportunities for taxpayers who incurred interest and penalties during the pandemic period.

Who May Be Affected?

The potential reach is broad and includes:

Individuals
Closely held businesses
Large corporations
Estates and trusts

Likewise, the refund opportunity applies to taxpayers who incurred:

Late filing penalties
Late payment penalties
Estimated tax penalties
Excise tax penalties
Employment tax penalties
Foreign information return penalties
Other civil penalties
Interest assessments

Every case is fact-specific, but the population potentially impacted is much larger than many initially assumed.

What Taxpayers Should Be Doing Now

Filing the appeal does not indicate that the IRS will refuse to concede the court’s decision in Kwong, nor does it necessarily mean the government intends to litigate the issue through every possible stage of appeal. At the same time, taxpayers should not assume the matter will be resolved quickly or wait for a final appellate outcome before evaluating their circumstances.

At a minimum, taxpayers who believe they may be affected should review bank statements, IRS notices, tax records and payment histories for COVID-period penalties, interest assessments or taxes paid that may fall within the relevant Kwong period in order to determine whether they have a plausible claim for refund or abatement.

The first step is simply determining whether an opportunity exists.

Taxpayers who delay evaluating potential claims may find that the procedural deadline has expired for seeking relief before the courts fully resolve the issue.

Conclusion

The IRS’s appeal in Kwong means the legal dispute surrounding COVID-era interest and penalty relief is continuing.

If you incurred IRS interest, penalties, or other potentially affected liabilities during the COVID period – or if you have questions regarding whether you qualify for relief – consider reaching out to a Withum tax professional to evaluate your specific facts and potential options. The deadline to file a refund claim is July 10, 2026, so now is the time to act.