Kwong v. United States: How to Claim IRS COVID-19 Penalty Relief Before the 2026 Deadline

A recent federal court decision is creating significant attention in the tax world because it may open the door for certain taxpayers to recover or obtain abatement of IRS penalties and related interest assessed during the COVID-19 period. While the case is still being litigated and no refunds or penalty relief are guaranteed, taxpayers who may be affected could face important deadlines in 2026 to preserve their rights.

For many taxpayers, this may create a narrow but valuable opportunity to file protective refund or abatement claims with the IRS before potentially applicable deadlines expire.

What is the Kwong v. United States Tax Case?

In November 2025, the U.S. Court of Federal Claims issued its decision in Kwong v. United States, interpreting a little-known disaster relief provision in the Internal Revenue Code — IRC Section 7508A — in a way that could have broad tax consequences. The court's interpretation of the tax code treated the pre-2021 version of IRC § 7508A(d) as mandatory and self-executing.

Section 7508A allows certain tax deadlines to be postponed when a federally declared disaster occurs. COVID-19 was one of the federally declared disasters at issue, and certain tax deadlines were legally postponed by the federal government during that period. During the COVID-19 pandemic, the IRS issued limited administrative relief postponing specific deadlines, such as the April 15, 2020 filing deadline for individuals and corporations.

The Kwong case, however, took a much broader view, rejecting narrower irs guidance and invalidating regulations that shortened relief instead of disregarding the full disaster window from January 20, 2020 through July 10, 2023. The court interpreted IRC Section 7508A as potentially extending certain federal tax filing and payment deadlines throughout the broader COVID-19 federal disaster declaration period from January 20, 2020 through July 10, 2023 — not only for the shorter periods specifically announced by the IRS. In doing so, the court concluded that the IRS may have lacked authority to assess certain failure-to-file penalties, failure-to-pay penalties, and related underpayment interest tied to deadlines potentially postponed during that period, meaning some interest and penalties and accrued interest may have been improperly charged because they were tied to an earlier due date rather than obligations related to a legally postponed one. That reading of Section 7508A could also affect disputes later addressed in tax court and materially change how certain refund deadlines are calculated.

Can Taxpayers Obtain Refunds or Abatement of IRS Penalties During COVID-19?

Many IRS penalties and interest charges are based on one fundamental question: When was the tax return or tax payment legally due? That legal due date can affect penalties and interest tied to an underlying tax liability.

If Kwong is ultimately upheld, some due dates may have been automatically postponed by law during the COVID-19 disaster period. If so, some taxpayers are potentially eligible to recover penalties and related interest that may have been assessed using the wrong legal due date.

Importantly, the issue may affect both penalties already paid and penalties that remain outstanding. In some cases, taxpayers may seek refunds of amounts previously paid, while in others they may seek abatement of penalties and related interest that the IRS continues to assess or collect. A refund claim applies to amounts already paid, while an abatement request applies to unpaid amounts the IRS has assessed but not yet collected.

If the reasoning in Kwong is ultimately sustained, the case could create meaningful refund or abatement opportunities for eligible taxpayers who paid and/or were assessed penalties and related interest on certain federal tax obligations arising between January 20, 2020 and July 10, 2023. If upheld, the ruling may help millions of taxpayers affected potentially recover previously assessed penalties and related interest during the pandemic. This may include:

• Failure-to-File amounts under IRC § 6651(a)(1)
• Failure-to-pay exposure under IRC § 6651(a)(2) and (a)(3)
• Estimated tax penalties
• Late payment interest
• Certain international information return penalties, including penalties associated with Form 5471 and Form 5472

How Does the Kwong Case Affect the Statute of Limitations?

One of the most important aspects of Kwong is that it was technically a statute of limitations case, and one of the key issues involves how the statute of limitations may be calculated under the applicable statute if the July 10, 2023 date is ultimately treated as an extended filing deadline for certain taxpayers. That means the decision may also affect how certain refund deadlines are computed.

If the reasoning in Kwong is sustained, some taxpayers may have arguments that:

• Refund claims previously treated as untimely may still be valid.
• Refund opportunities believed to be closed may still be open.
• Certain IRS procedural deadlines may need to be recalculated.

The IRS generally requires claims for refunds to be made within three years from the date a return was filed or two years from the date the tax was paid, whichever is later, so timely filing matters because taxpayers generally must file refund claims under the applicable statute within the required period or risk forfeiting refund rights. By filing a protective claim before the deadline, a taxpayer may preserve the relevant tax years while the related uncertainty remains unresolved, and the July 10, 2026 date is measured as three years from the end of the COVID-19 disaster declaration for the tax year or tax involved, depending on the claim context.

This makes the case relevant not only for taxpayers who paid penalties, but also for those who may have procedural refund issues tied to the COVID-19 period.

What is the Deadline for Kwong v. United States Protective Claims?

July 10, 2026 is the critical date practitioners are closely monitoring because taxpayers seeking refunds may submit a protective refund claim up to that date for certain refund or abatement claims tied to the Kwong litigation, based on how the court interpreted the COVID-19 federal disaster declaration period and related limitations rules.

The case is not final; the federal claims decision has been appealed, and the government filed a Notice of Appeal to the Federal Circuit on May 15, 2026. The IRS generally expects affected taxpayers to file a claim proactively rather than wait for automatic refunds or abatements, and refund statutes continue to run during this process.

As a result, many tax professionals are recommending that potentially affected taxpayers evaluate whether refund or protective claim submissions should be made using Form 843 to request refunds and preserve their rights while the litigation continues. The ruling allows such filings through July 10, 2026, effectively reopening claims for billions of dollars. Missing that deadline can permanently forfeit the taxpayer's right to potential refunds tied to penalties or interest already paid.

A protective claim:

• Does not guarantee a refund or penalty relief.
• Does not require the IRS to issue payment now.
• May preserve the taxpayer’s right to recover later, and a protective refund claim can protect potential refunds even while the exact amount remains uncertain.

After submission, the IRS generally places the claim in suspense until the outside event is resolved, with no immediate payment made unless a later amended claim establishes the refund amount.

Who Qualifies for Potential Relief Under the Kwong Decision?

Some taxpayers may be potentially eligible during the 2020–2023 period, but abatement eligibility depends on the specific penalty assessed, any interest paid, and the timing shown in their records, because the IRS does not automatically identify who may qualify.

Review IRS account transcripts for each tax period, along with IRS notices and tax records, to determine what the IRS assessed and when, especially if the timing falls within the declared disaster period or the broader disaster window. Most taxpayers will need to determine which penalty assessments apply for each tax year before deciding whether to act:

• Paid penalties or related interest during 2020–2023.
• Were assessed penalties or interest that remain unpaid.
• Filed late returns during that period.
• Had estimated tax penalties assessed.
• Paid or were assessed international information return penalties, including Form 5471 or Form 5472 penalties.
• Had refund claims denied on statute of limitations or timing grounds during the COVID-19 years.

This review may also matter for late filing penalties, employment tax issues, and other tax obligations, but only where those assessments arose during the declared disaster period.

For some taxpayers, the refund opportunity may be modest. For others, including some businesses and high-net-worth individuals, combined penalties and related interest may be significant enough to justify review before potential protective claim deadlines expire.

How to File a Protective Refund or Abatement Claim for COVID Penalties

Reviewing IRS records and submitting the correct documentation requires technical precision. To file protective claims, taxpayers can submit IRS Form 843, Claim for Refund and Request for Abatement, to request refunds or reductions of penalties and interest, and the filing should identify the tax involved and applicable tax year for each claim. Taxpayers should also identify the ongoing litigation, state the exact tax periods involved in writing, explain the legal basis for the requested relief, and submit Form 843 on paper to the appropriate IRS service center by certified mail as a protective refund or abatement claim related to ongoing litigation.

We can assist taxpayers through every step of this time-sensitive process by:

• Reviewing IRS transcripts and account history.
• Identifying potentially impacted tax periods.
• Evaluating whether taxpayers are potentially eligible based on the penalty type and disaster-period timing under the Kwong case.
• Preparing and filing protective refund or abatement claims via Form 843, including supporting documentation where appropriate.
• Monitoring legal developments as the case progresses.
• Assisting with IRS controversy matters and potential refund recovery if the litigation develops favorably.

These filings are commonly used in pending litigation, expected legislation, audits, or unresolved estate matters, which is why a protective claim related to the Kwong appeal may be important now.

Next Steps for Affected Taxpayers: Evaluate Protective Claims Before July 10, 2026

While the legal issue is still being resolved, taxpayers who may be affected should not wait until the litigation is over to review their position. In many cases, filing a protective refund or abatement claim before potentially applicable deadlines expire may be necessary to preserve certain taxpayer rights while the litigation remains unresolved.

If you believe you may be affected, our tax team can help evaluate your situation and determine whether action should be taken before important deadlines approach. Contact us today to discuss your options.

Disclaimer: The Kwong decision remains subject to ongoing litigation and possible appellate review. The IRS has not announced a general refund or penalty abatement program related to the case. Taxpayers should consult qualified tax counsel regarding their specific facts, applicable statutes of limitation, and procedural requirements.