The COVID-19 years created unusual tax compliance challenges. Filing deadlines moved, IRS operations were disrupted, and many taxpayers struggled to determine when returns, payments, and related filings were actually due. A recent Court of Federal Claims decision has now created a potentially significant refund and abatement opportunity for taxpayers who paid penalties or interest tied to that period.
The catch is timing: for many taxpayers, protecting the claim may require action by July 10, 2026, and relief is not automatic. The law is still developing, so the opportunity is real, but so is the need to move quickly and carefully.
What happened in Kwong v. United States
In Kwong v. United States, the Court of Federal Claims held that, under the 2019 version of IRC Section 7508A(d), the COVID-19 disaster postponement period ran from the beginning of the disaster declaration through the end of the declared disaster period, plus 60 additional days. The court stated that the “plain meaning” of the statute made the automatic extension run from the beginning of the disaster declaration “through the end of the declared disaster period, and until 60 days after the end of the declared disaster period.” Applying that reading, the court concluded that the mandatory extension period for COVID-19 began on January 20, 2020 and ended on July 10, 2023.
That holding mattered because it meant certain refund claims that the government had previously contested were too late were actually timely. The case did not give the taxpayer a complete win on every year or every theory. The court granted the government’s motion in part and denied it in part. But for broader planning purposes, the key takeaway is that the court adopted an expansive reading of the COVID postponement rules, and that interpretation has opened the door to refund and abatement claims for penalties and interest assessed during that period.
When a refund or abatement may be available
If the Kwong interpretation ultimately stands, taxpayers may be entitled to refunds or abatements for certain late-filing penalties, late-payment penalties, estimated tax penalties, and related interest assessed during the COVID disaster period. Specifically, based on the Kwong ruling, tax returns and payments due within the January 20, 2020 through July 10, 2023 window would not have been late until after that period ended. That means a refund opportunity may exist where penalties or interest were computed as though a filing or payment deadline fell during that postponed period.
The court’s reading may affect more than standard income tax filings, potentially reaching other federal tax deadlines and consequences that depend on whether an act was deemed late.
This is still a potential opportunity, not a settled entitlement for everyone. The IRS’s position has been narrower, and the issue may continue to be litigated. That is why many advisers are focusing on filing protective claims now rather than waiting for a final appellate answer.
What taxpayers need to qualify
Not every taxpayer with a COVID-era balance due will qualify. At a high level, there are several technical requirements.
First, there must be a penalty or interest amount that is actually tied to a deadline or timing rule affected by the COVID disaster postponement analysis. These could include penalties for failure to file, failure to pay, and estimated tax obligations.
Second, the taxpayer must still be within the applicable refund claim statute. The IRS explains that, in general, a refund claim must be filed by the later of three years from the date the return was filed or two years from the date the tax was paid. If a return was filed before its due date, the IRS treats it as filed on the due date, and withholding and estimated tax payments are generally treated as paid on the return due date.
Third, because the law is unsettled, many taxpayers may want to file a protective claim. A protective claim allows you to preserve your right to a refund while the law is still uncertain. A valid claim does not need to state an exact dollar amount, but it must clearly identify the contingency, the essential nature of the claim, and the specific year or years involved.
Taxpayers will want to use Form 843, Claim for Refund and Request for Abatement, which may also cover protective claims for penalties and interest assessed but not yet paid.
Next steps before the deadline
For many taxpayers, the most important next step is to determine whether any penalties or interest were assessed during the COVID postponement window and whether a claim should be filed before July 10, 2026.
Practically, that means gathering account information, identifying affected tax years, and reviewing IRS transcripts or notices to pinpoint penalty and interest assessments. If a claim appears viable, taxpayers should consider filing Form 843 on paper, because the form cannot be e-filed. Given the uncertainty, filing a protective refund claim may be the most prudent route where the exact amount is still being evaluated or the legal issue remains unresolved.
How Aura Advisors can help
This is one of those rare moments where a technical court decision may translate into real dollars for a wide range of taxpayers. But it is also a situation where waiting could forfeit the opportunity altogether. Aura Advisors can help assess whether your penalties or interest may be affected, determine whether a refund or abatement claim is still timely, and prepare a defensible filing before the statute closes.
To discuss whether you qualify and the appropriate next steps, reach out to our team.
For more reading:
- Understanding IRS First Time Penalty Abatement and Reasonable Cause Waivers
- The One-Time IRS Penalty Relief Many Taxpayers Miss
- Options for IRS Payment Plans for Businesses & Individuals
Aura Advisors is a boutique tax consulting and compliance firm working with start-ups, emerging growth companies, and affluent individuals. Making it safer for good people and good companies to continue to do good things.