Refund Claims Under Kwong v. United States: Why Taxpayers May Need to Act Soon

A recent court decision has created potential refund opportunities for certain taxpayers affected by tax filing and payment deadlines during the COVID-19 federal disaster period. While much of the attention has focused on penalties and interest, recent developments suggest the decision could have broader implications for refund claims, amended returns, refundable credits, and other tax benefits tied to filing deadlines.

The case, Kwong v. United States, centered on whether the COVID-19 federal disaster declaration automatically postponed certain tax filing and payment deadlines under IRC § 7508A(d), even beyond the shorter relief periods previously announced by the IRS. The Court of Federal Claims sided with the taxpayer, concluding that the statutory postponement applied for the full disaster period plus 60 days.  Under that interpretation, many filing and payment deadlines that fell between January 20, 2020, and May 11, 2023, may have been postponed until July 10, 2023. However, the IRS has now appealed the decision to the U.S. Court of Appeals for the Federal Circuit. Because the appeal is pending and the government has not yet fully briefed its position, the scope and ultimate impact of the decision remain uncertain.

If that interpretation ultimately stands, some taxpayers may be entitled to refunds or abatements of penalties and interest previously assessed or paid during that period. However, this issue remains complex, unsettled, and time-sensitive. For affected taxpayers, the key issue is not simply whether the law is ultimately resolved in their favor, but whether they take steps now to preserve their rights before the applicable refund claim deadline passes.

Why the Kwong Decision Matters

The impact of Kwong could be significant because certain tax deadlines may have been calculated based on dates the court found should have been postponed. Depending on the taxpayer's circumstances, the decision could affect penalties, interest, refund claims, amended returns, and other tax benefits tied to filing or payment deadlines. The decision may apply differently depending on the taxpayer, the type of tax involved, the year at issue, and whether the amounts have already been paid or remain outstanding. It could also affect refund claims, abatement requests, open examinations, Appeals matters, or litigation involving affected years.

Because the issue is not final, taxpayers should not assume relief will apply automatically. The government may continue to challenge the decision, and future litigation or guidance could affect how broadly the rule applies. That uncertainty is why many taxpayers may need to evaluate whether filing a protective claim is appropriate.

Recent commentary from the National Taxpayer Advocate suggests that the reasoning in Kwong may reach beyond penalty and interest issues. Depending on future court decisions, taxpayers may argue that certain refund claims, amended returns, refundable credits, and other tax benefits tied to filing deadlines remain timely because the COVID-era disaster period may need to be excluded when calculating applicable statutory deadlines.

Why Protective Claims May Be Important

A protective claim allows a taxpayer to preserve refund rights while a legal issue remains unresolved. In this context, taxpayers who paid penalties or interest that could be affected by Kwong may consider filing a protective refund claim before the statute of limitations expires.

For many taxpayers, July 10, 2026, may be an important deadline. If the Kwong reasoning applies, claims tied to certain COVID-era filing and payment deadlines may need to be filed by that date to preserve refund rights.

A protective claim is not the same as receiving an immediate refund. It must generally be specific enough to identify the basis for relief, including the legal arguments being preserved. If a claim is too vague, the taxpayer could face challenges later if the matter proceeds to litigation.

Protective claims may also be relevant for taxpayers who believe they lost the ability to claim refunds, credits, or other tax benefits because normal statutory filing periods expired. Although the courts have not yet resolved these questions, some taxpayers may wish to preserve potential rights while the litigation continues.

What Taxpayers Should Review

Taxpayers should evaluate whether they paid or were assessed penalties or interest related to tax deadlines that fell during the COVID-19 federal disaster period. Areas to review may include:

• Failure-to-file, failure-to-pay, or estimated tax penalties for tax years 2019 through 2022
• Other penalties assessed during the applicable COVID-era period
• Interest that accrued during the period potentially affected by the Kwong reasoning
• Unpaid penalties or interest that may be eligible for abatement
• Open examinations, Appeals matters, or litigation involving affected years

Because the scope of potential relief remains unsettled, taxpayers should work with their advisors to determine which amounts may be appropriate to include in a protective claim.

Filing Considerations

In many cases involving penalties or interest, taxpayers seeking a refund or abatement may need to file Form 843. However, taxpayers pursuing other forms of relief, such as tax refunds arising from amended returns or missed refund claims, may need to use different filing procedures depending on the nature of the claim.

A strong protective claim should do more than state that the taxpayer may be affected by Kwong. It should identify the years involved, the types of penalties or interest at issue, the contingent legal basis for the claim, and the taxpayer’s request that the IRS preserve the claim pending final resolution of the legal issue.

Careful drafting matters. If a taxpayer later needs to pursue the claim further, the legal arguments preserved in the original filing may affect whether the taxpayer can continue to assert the claim. For that reason, taxpayers should avoid waiting until the deadline is near before beginning the review process.

Why Taxpayers Should Act Now

The potential opportunity created by Kwong may be significant, but it is not automatic. The IRS generally does not issue refunds or abatements unless a taxpayer files a claim, and taxpayers who do not take timely action may lose the ability to benefit if the courts ultimately uphold the decision.

At the same time, taxpayers should understand that Kwong remains a developing legal issue. The IRS has appealed the decision, and future court rulings or administrative guidance could affect the scope of available relief. Filing a protective claim may help preserve potential rights, but it does not guarantee a refund. Eligibility and filing strategy will depend on the taxpayer's specific facts, the amounts involved, future developments in the case, and the cost-benefit of pursuing a claim.

Taxpayers who paid meaningful penalties or interest during the COVID-era disaster period—or who may have potential refund claims, credits, or other tax benefits affected by COVID-era deadline extensions—should review their situation before applicable filing windows close. Depending on the facts and circumstances, filing a protective refund claim may be appropriate to preserve potential rights while the legal issues continue to be resolved.

Taxpayers should monitor developments closely and contact their CRI advisor to evaluate whether the Kwong decision may affect their tax situation and whether filing a protective claim before July 10, 2026, or another applicable deadline is appropriate.