Somewhere in the annals of American tax history, there are rulings so complex they barely register a ripple outside courtroom hallways. Then, quietly, they surface. Deadlines materialize. And millions of people who had no idea they were owed money suddenly find themselves with a narrow window to collect it.
That is exactly the situation unfolding right now. A federal court ruling handed down in late 2025 has opened what legal experts are describing as one of the largest potential tax refund opportunities in recent memory. The IRS may have improperly assessed penalties and interest against tens of millions of Americans during the COVID-19 pandemic period – and for most of those taxpayers, the deadline to file a claim falls on July 10, 2026. That is just weeks away.
The mechanics are technical. The implications are not. If you paid IRS penalties or interest for late filing or late payment at any point between January 20, 2020, and July 10, 2023, this is worth your attention.
A Quick Overview
Tens of millions of taxpayers may be entitled to refunds or abatements of penalties and interest that the IRS assessed during the nearly 3.5-year COVID-19 federal disaster period. The opportunity stems from a November 2025 court ruling that reinterpreted the legal scope of pandemic-era disaster relief – and the window to act is closing fast. Relief will not be automatic. Complex legal developments and a lack of widely distributed information create a serious risk that many taxpayers will miss out entirely.
The core issue: in Kwong v. United States, a November 2025 ruling by the U.S. Court of Federal Claims held that former IRC §7508A(d) required a mandatory, automatic extension of federal tax deadlines for the entire duration of the COVID-19 disaster period, from January 20, 2020, through July 10, 2023 – more than three years of suspended deadlines, far longer than the limited relief windows the IRS had announced administratively during the pandemic.
The government disputes the ruling. An appeal is widely anticipated. But the statute of limitations for refund claims may expire regardless of how the litigation unfolds – which is why the nation’s top taxpayer advocate is urging taxpayers to act now.
The Legal Foundation: What the Court Actually Ruled
Kwong v. United States (November 2025)
On November 25, 2025, the Court of Federal Claims delivered a landmark ruling in Kwong v. United States, holding that due to the COVID-19 disaster declaration, federal tax deadlines were mandatorily and automatically postponed from January 20, 2020, all the way to July 10, 2023.
The case arose in a narrower context. Terry Kwong had filed refund claims for penalties assessed across multiple tax years. The IRS denied those claims, and Kwong filed suit in February 2023 – more than two years after receiving the denial notices. Under normal circumstances, IRC Section 6532(a) imposes a strict two-year deadline for filing refund suits after the IRS mails a disallowance notice. The government argued the lawsuit was therefore too late.
In concluding that the suit was timely, the Court of Federal Claims held that Section 7508A(d) requires the entire disaster period, plus 60 days, to be disregarded – applying the rule broadly to extend the time for filing a refund suit. That conclusion, while focused on a procedural deadline, carried enormous substantive implications. Although Kwong itself involved a procedural deadline for filing a refund suit, the court’s reasoning could have much broader implications. Since the IRS computes underpayment interest and failure-to-file and failure-to-pay penalties from the payment due date, penalties should not have accrued from January 20, 2020, through July 10, 2023 – and any taxpayers who already paid these amounts may be entitled to a refund.
The ruling in Kwong is specific on timing. FEMA’s COVID-19 disaster incident period ran from January 20, 2020, through May 11, 2023, and tax law added another 60 days, extending the period to July 10, 2023, for tax purposes.
The Precursor: Abdo v. Commissioner (2024)
Kwong did not arrive without precedent. In Abdo v. Commissioner, 162 T.C. 148 (2024), the United States Tax Court held that Internal Revenue Code section 7508A(d) provides a mandatory, self-executing postponement period for qualifying taxpayers, and that Treasury regulations could not narrow that statutory relief.
In reaching this decision, the court held that Section 7508A(d) creates a mandatory, self-executing extension, and it invalidated a U.S. Department of the Treasury regulation that sought to limit the provision’s application. Specifically, the Tax Court invalidated the Treasury Regulation to the extent it attempted to limit the mandatory postponement period to only those acts the Secretary had separately chosen to postpone under discretionary authority.
Abdo addressed Tax Court petition filing deadlines; Kwong extends the reasoning to penalties and interest. Commentary in 2026 has described Abdo as final and not appealed.
The distinction matters. The IRS had maintained, through its own regulations, that the mandatory disaster-period extension could not exceed one year, regardless of how long the declared disaster lasted. A Treasury Regulation had stated that the mandatory postponement period could never result in more than one year being disregarded. In plain terms, the IRS had written a rule saying that even if the COVID disaster lasted more than a year, the mandatory deadline extension under Section 7508A was capped at one year. Like the Tax Court in Abdo, the court in Kwong relied on the statute’s plain text and declined to follow regulatory interpretations that imposed additional limitations.
The Supreme Court’s Shadow: Loper Bright and the End of Chevron Deference
Tax practitioners have flagged that Kwong is not an isolated event. It is, in significant part, a downstream consequence of a landmark Supreme Court ruling from 2024.
Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), is a landmark decision of the Supreme Court in the field of administrative law. Together with its companion case, Relentless, Inc. v. Department of Commerce, it overruled the principle of Chevron deference established in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. (1984), which had directed courts to defer to an agency’s reasonable interpretation of an ambiguity in a law that the agency enforces.
On June 28, 2024, the Supreme Court issued its decision striking down Chevron deference. The Chevron framework had required courts to defer to reasonable agency interpretations of ambiguous statutes. In its place, the Court directed the judiciary to exercise its independent judgment in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency’s legal interpretation simply because a statute is ambiguous.
The tax consequence is direct. Tax practitioners say the cases are also a downstream effect of the Supreme Court’s 2024 decision in Loper Bright, which ended the longstanding Chevron doctrine requiring courts to defer to federal agencies’ readings of ambiguous statutes. Courts now interpret tax statutes independently – and in Kwong, that reading favored the taxpayer.
Congress Also Weighed In
A third legal development compounds the picture. On December 26, 2025, the President signed the Disaster-Related Extension of Deadlines Act into law, marking a meaningful step forward for taxpayers affected by disasters. This law requires the IRS to treat the postponement of a federal tax return deadline due to a federally declared disaster or certain other events as an extension of such deadline for purposes of making a refund claim.
However, the new law applies prospectively, to future disasters, not retroactively to COVID-19. Taxpayers seeking refunds for the pandemic period cannot rely on the new legislation alone. The Kwong ruling remains the operative legal basis for COVID-era claims – and it is still being litigated.
The Scale of Potential Refunds
The numbers involved are significant. In fiscal 2022 alone, the IRS levied more than 12 million estimated-tax penalties and over 16 million failure-to-pay penalties totaling more than $12 billion. That is a single year’s snapshot from within the three-and-a-half-year window in question.
The IRS previously refunded about $1.2 billion in penalties to roughly 1.6 million taxpayers under a narrower 2022 relief notice, but tax professionals say the legal theory at issue here reaches far more taxpayers.
The IRS is widely expected to appeal this decision because it challenges their regulation capping disaster relief at one year, and the decision could require refunds of billions of dollars in penalties and interest.
For individual taxpayers, the potential amounts vary considerably by circumstances. Early estimates suggest thousands of dollars for many taxpayers, with some business owners potentially seeing five-figure refunds.
Who Qualifies
The eligibility criteria are broader than most taxpayers assume.
The affected taxpayers could include individuals, small businesses, large corporations, estates, and trusts. The issue could apply to several kinds of taxes, including income, employment, estate, gift, and excise taxes. It may also affect taxpayers who filed late international information returns, which can result in significant penalties even when no tax is due.
Because COVID-19 was a nationwide disaster, nearly all U.S. taxpayers meet the qualified taxpayer geographic requirement.
Specifically, under the Kwong reasoning, taxpayers may qualify if they were assessed penalties for failing to timely file their returns, pay their taxes, or make estimated tax payments; interest that began accruing earlier than it should have, or not at all; or overpayment interest for the same time period.
Taxpayers whose original due date preceded January 20, 2020, may still have relief arguments for the portion of interest and penalties that accrued within the disaster period.
One category of taxpayers deserves special attention. Many taxpayers affected by this issue have low and moderate incomes. These taxpayers are less likely to have professional representation and to learn about complex legal developments like this one. As a result, they face a greater risk of missing the opportunity to claim refunds to which they may be entitled.
What Is Not Automatically Covered
Not every tax situation from 2020 to 2023 qualifies. This is not a blanket refund ruling; it is one court’s reading of the statute, and the government may continue to challenge the issue. Refunds or abatements depend on the specific types of charges assessed, when they accrued, and whether proper claims are filed. Individual circumstances matter, and the amount of any refund may be constrained by additional lookback rules under Section 6511(b)(2).
The Government’s Position
The Treasury Department has made its view clear. According to Fox Business, the taxpayer advocate noted that the Justice Department may appeal the decision, but the relief compelled by the ruling is not automatic, and affected taxpayers must file their refund claims by July 10, 2026.
As of May 2026, no final, appealable judgment has yet been entered in the Kwong v. United States case in the Court of Federal Claims, but the parties have taken steps to enable an appeal. In late 2025, Judge Molly Silfen of the U.S. Court of Federal Claims ruled in favor of the taxpayer, holding that COVID-19 tax deadlines were automatically extended to July 10, 2023, under a 2019 statute.
As of March 2026, the parties indicated they were preparing a joint motion for a stipulated judgment, which would then allow the government to appeal to the U.S. Court of Appeals for the Federal Circuit.
The likelihood of appeal carries real practical weight for taxpayers. Because the law in this area is still being litigated, taxpayers should also consider filing protective claims to preserve their rights. A protective claim holds a taxpayer’s place in line, legally speaking, while the courts work through the issue.
The Equity Problem: “Well-Advised” Versus “Unaware”
National Taxpayer Advocate Erin M. Collins, writing for the Taxpayer Advocate Service, has identified a fairness concern at the heart of this situation.
Without IRS or congressional action, outcomes may unfairly favor the “well advised” over the “unaware.” This relief will not happen automatically. To protect their rights, most taxpayers must file a claim for refund – generally by July 10, 2026. This situation highlights a core concern raised repeatedly: when relief exists but is difficult to access, taxpayers, especially those without representation, are at risk of losing benefits.
Under the court’s interpretation in Kwong, the mandatory postponement period is based on the length of the disaster, and the COVID-19 disaster period continued for 3.5 years. Because of the infrequency of a disaster lasting this long, most taxpayers – even most tax professionals – did not foresee that filing deadlines and payment deadlines would be postponed for this long, and that return filings and payments during the federal disaster period would not be considered late and therefore not subject to penalties and interest. But that is the logical extension of what the court ruled.
Taxpayers must mail Form 843 on paper, and the IRS does not provide confirmation that it received the claim. National Taxpayer Advocate Collins recommends sending claims by certified mail, and has called on the IRS to build an electronic portal to handle what could be a flood of filings.
How to Check Your Eligibility and File a Claim
Step 1: Pull Your IRS Account Transcripts
For taxpayers evaluating potential COVID-19 period refunds and abatements, timing is critical. A tax account transcript can help identify whether penalties and interest occurred during the COVID-19 disaster relief period, from January 20, 2020, through July 10, 2023. Taxpayers often find their transcripts challenging to understand, but the good news is that they do not need to decode every line. Rather, they should focus on dates and transaction entries, paying close attention to entries relating to tax assessments, payments, penalty assessments, interest charges, account adjustments, and refunds.
Using your IRS.gov account, review account transcripts for tax years 2019 to 2023 and flag any penalty and interest entries. Any charges accruing between January 20, 2020, and July 10, 2023, deserve a closer look.
Step 2: Assess What Was Charged
IRC §7508A(d) provides for a mandatory postponement period of certain tax-related obligations, including the suspension of the accrual of underpayment interest for the duration of the COVID-19 incident period plus 60 days. IRC §7508A also appears to have paused the increase of failure-to-file and failure-to-pay penalties, which are based on the time during which the taxpayer is not in compliance.
Taxpayers should review account transcripts carefully to identify interest and penalties assessed within the relevant window and determine whether those charges relate to deadlines that were suspended under the court’s interpretation.
Step 3: File IRS Form 843 – Before July 10, 2026
Most taxpayers will need to file claims by July 10, 2026, using Form 843, Claim for Refund and Request for Abatement.
For taxpayers who want to preserve their rights while the legal outcome remains uncertain, a protective claim is the recommended approach. Taxpayers can write “Protective Refund Claim Pursuant to Kwong Case” or something similar across the top of Form 843, then include as much detail as possible.
Form 843 cannot be filed electronically. Taxpayers must mail it on paper, and the IRS does not provide confirmation that it received the claim. The Taxpayer Advocate recommends sending claims by certified mail.
Typically, the IRS holds protective claims for refunds in suspense until the underlying issue is resolved by the courts, and the claim can be perfected by providing the final numbers based upon the court’s decision. Protective claims prevent the period of limitations from expiring while waiting for a final resolution.
A critical caution: filing a protective claim is crucial to preserve rights while the government potentially appeals this decision. Filing a claim does not guarantee a refund – but not filing a claim will assure there is no refund.
Step 4: Consider State-Level Implications
Taxpayers should also consider whether additional claims at the state level exist and take appropriate steps to preserve those claims. Most states extended payment and filing deadlines during the disaster period; however, these provisions and implications vary from state to state.
Important Caveats and Limitations
Several boundaries apply that taxpayers and practitioners should understand clearly.
Refund claims are generally required to be filed within three years from the time the return was filed or two years from the time the tax was paid, whichever is later. In addition, the amount of any refund may be limited by the Section 6511(b)(2) lookback rules, which restrict recovery based on when the relevant tax payments were made.
The law remains unsettled, and the government is expected to continue challenging this position. Because the issue may take years to resolve through additional litigation or IRS guidance, taxpayers who may be affected should not assume refunds will be automatic. If taxpayers wait too long to file a claim, they may lose the chance to get a refund later if the courts ultimately side with taxpayers.
The IRS may deny claims based on a narrower interpretation, which can require administrative appeals or litigation to resolve.
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What This Means for You
The situation created by Kwong v. United States and the surrounding legal developments is genuinely unusual. A federal court has concluded, based on a straightforward reading of the statute Congress passed, that the IRS was not authorized to assess the penalties and interest it charged during most of the COVID-19 pandemic. Tens of millions of taxpayers were affected. Most of them have no idea.
The path forward requires action, not patience. For most taxpayers, the deadline to file refund or abatement claims is July 10, 2026. The process is not complicated, but it is paper-based, manual, and time-sensitive. Taxpayers should pull their IRS account transcripts, identify any penalties or interest assessed between January 20, 2020, and July 10, 2023, and evaluate whether filing Form 843 – or a protective version of it – is warranted before the deadline.
Given the complexity of identifying eligible payments and properly completing Form 843, most financial advisers recommend consulting with a tax professional. For lower-income taxpayers who may not have access to professional representation, free assistance is available through the IRS’s Volunteer Income Tax Assistance (VITA) program and through Low Income Taxpayer Clinics (LITCs) around the country. The Taxpayer Advocate Service also provides free assistance to taxpayers experiencing hardship or dealing with IRS problems they cannot resolve on their own.
The outcome of the Kwong appeal remains genuinely uncertain. This is a trial-level federal court decision. Other courts could interpret the statute differently, and the government may seek review in future cases. But under current law, as interpreted by the Court of Federal Claims and supported by the Tax Court’s prior ruling in Abdo, the case for refunds is real. The deadline is fixed. The form is Form 843. And the only way to be excluded from a potential recovery is to do nothing.
Disclaimer: This information is not intended to be a substitute for professional financial advice, investment advice, tax advice, or legal advice, and is provided for informational purposes only. Always seek the guidance of a qualified financial advisor, accountant, or other licensed professional regarding your personal financial situation or investment decisions. Do not make financial, investment, or tax decisions based solely on information presented here. Past performance is not indicative of future results, and all investments carry risk, including the potential loss of principal.
AI Disclaimer: This article was created with the assistance of AI tools and reviewed by a human editor.