The recent decision of the United States Court of Federal Claims in Kwong v. United States, No. 23-267 (Fed. Cl. Nov. 25, 2025), provides a potential tax refund opportunity for taxpayers who paid underpayment interest and/or failure-to-file or failure-to-pay penalties that accrued during all or part of the COVID-19 disaster declaration period from January 20, 2020, through July 10, 2023.
Section 7508A(d) of the Internal Revenue Code, prior to its amendment in November 2021, provides for a mandatory postponement of certain tax-related obligations, including the suspension of underpayment interest and failure-to-file and failure-to-pay penalties for the duration of the federal disaster incident period, plus 60 days. The court rejected Treas. Reg. 301.7508A‑1(g)(3)(ii), which stated, "[i]n no event will the mandatory 60-day postponement period [under Section 7508A(d)] be calculated to exceed one year." The court noted that under Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), the IRS's reading of the statute is not determinative. The court found that the plain text of Section 7508(d) provided for an automatic extension of the tax filing and tax payment deadlines and suspension of interest from the beginning of the disaster declaration, through the end of the declared disaster period, plus 60 days.
Kwong could have major implications for taxpayers who incurred failure-to-file or failure-to-pay penalties for filing or payment deadlines between January 20, 2020, and July 10, 2023. Pursuant to the court's analysis in Kwong, the deadline for payment of any federal tax or filing any federal tax return that fell between these two dates was extended to July 11, 2023. Moreover, underpayment interest should not accrue for taxpayers with payment due dates in that period. Furthermore, taxpayers with payment due dates preceding January 20, 2020, could be entitled to relief for underpayment interest and/or failure-to-file or failure-to-pay penalties that accrued during the period from January 20, 2020, to July 11, 2023.
While Section 7508(d) was amended in November 2021, the amendment applies only to disasters declared after the amendment. Thus, the amendment does not have retroactive effect. Affected taxpayers who already paid penalties and interest should consider filing refund claims, while affected taxpayers with unpaid penalties and interest should consider filing abatement claims.
The statute of limitations under Section 6511 to file a refund claim to recover tax expires at the later of three years from the filing deadline of the original tax return or two years from the date on which payment was made.
Given the sweeping implications of Kwong, the government is expected to appeal the holding of the Court of Federal Claims.