Does the IRS Owe You Money? Recent Case Opens the Door to COVID-Era Refund Claims
While the COVID-19 pandemic is by now far in the rear view, one recently decided case is putting COVID-era penalty and interest relief squarely in the spotlight. Kwong v. United States was decided late in 2025 — and the U.S. Court of Federal Claims sided with the taxpayer in their broad interpretation of the penalty and interest relief granted to taxpayers during the pandemic. If the court's interpretation prevails, many taxpayers may be entitled to significant refunds for late payments, late filings and other penalties incurred during the disaster period. Although future challenges to the decision are a near-certainty, taxpayers who incurred substantial penalties should be paying attention today—because the deadline for claiming refunds is fast approaching.
Pandemic-Era Relief: Background
Under IRC Section 7508A, the IRS is entitled by law to postpone various deadlines during federally declared disasters. Under the law, relevant deadlines are postponed for the duration of the presidentially declared disaster period plus 60 days.
Most often, the extensions are granted to discrete geographic areas during natural disasters. The COVID-19 pandemic was obviously a different situation. The president declared a nationwide disaster that lasted from January 20, 2020, until May 11, 2023. Counting the 60-day additional period, deadlines were potentially extended until July 10, 2023.
Kwong: Facts of the Case
In Kwong, the primary issue is whether Section 7508A applied broadly to federal tax deadlines or only to the more limited relief announced specifically by the IRS during the disaster period.
The government initially denied the taxpayer's refund claim in Kwong, after which the taxpayer filed a lawsuit challenging the government's denial. The government argued that the lawsuit was not timely because it was filed after the two-year statute of limitations period had already expired. In turn, the taxpayer argued that the statute of limitations was suspended during the COVID pandemic, so that the lawsuit was timely.
The court agreed with the taxpayer, finding that deadlines were automatically extended for the entire duration of the disaster period, plus 60 days—meaning that the statute of limitations was suspended until July 10, 2023, and the lawsuit was filed before the deadline. The court based its decision on the fact that it's the statutory language that controls, rather than the narrower guidance released by the IRS and Treasury during the pandemic disaster period.
While this may seem like a purely procedural issue, it can have much broader implications for taxpayers. Taxpayers who incurred failure-to-file penalties, failure-to-pay penalties, underpayment interest and late payment penalties during the pandemic disaster period may be able to claim refunds (or abatements if they did not pay the relevant penalty).
Future Action Steps for Taxpayers Today
The case is significant in that if the court's interpretation is upheld going forward, it could mean that deadlines for filing certain elections, refund claim deadlines and other limitations periods could have been extended during the disaster period.
It is widely expected that the government will appeal the decision. That said, the clock for taking relevant actions continues to run today. Even if the court's interpretation stands, the government won't automatically issue refunds for interest and penalties. Taxpayers should evaluate whether they incurred interest, penalties and other time-related tax liabilities between January 20, 2020, and July 10, 2023.
Taxpayers who have may wish to file protective refund claims in order to protect and preserve their right to refunds should the Kwong decision stand. A protective refund claim effectively "freezes" the statute of limitations that applies in your case. Given the court's interpretation, the deadline to file a protective claim would be July 10, 2026.
Taxpayers can use irs.gov to retrieve their transcripts and determine whether they paid penalties or interest during the relevant period. While the issue is not yet resolved, many experts believe that the relevant issue is when the interest or penalties accrued, rather than when the IRS actually assessed the amounts.
Conclusion
While the Kwong case was decided in November of 2025, it's taken time for the tax community to evaluate the potential significance of this broad interpretation of the law. The court's interpretation gives a wide range of taxpayers significant opportunity to potentially recoup interest and penalties paid during the COVID era. The deadline for taking legal action is right around the corner, so taxpayers should evaluate their circumstances as quickly as possible with the help of an experienced tax professional.