COVID-Era IRS Penalties and Interest: What the Kwong v. United States Decision Could Mean for Taxpayers

A recent federal court ruling has raised important questions about whether certain IRS penalties and interest assessed during the COVID-19 pandemic were properly imposed. Taxpayers who were affected may need to act before a fast-approaching deadline to preserve potential refund or abatement rights.

In November 2025, the U.S. Court of Federal Claims issued its decision in Kwong v. United States, 179 Fed. Cl. 382 (2025). The court held that Internal Revenue Code § 7508A(d) — the provision governing disaster-related postponements of tax deadlines — required an automatic suspension of federal tax filing and payment deadlines for the entire duration of the COVID-19 federal disaster period.

That period ran from January 20, 2020 (the date of the first confirmed U.S. COVID-19 case) through July 10, 2023 (60 days after the federal public health emergency formally ended on May 11, 2023).

Under the court’s reasoning, tax returns and payments due at any point within that window were not considered late until after July 10, 2023 — meaning the IRS should not have assessed certain penalties for late filing or payment during the entire 3.5-year period, nor charged interest on those amounts.

This interpretation is significantly broader than the limited administrative relief the IRS provided during the pandemic. If upheld, it could open the door to refunds or abatements for a wide range of taxpayers — but the issue is far from settled.

The United States has appealed the Kwong decision to the U.S. Court of Appeals for the Federal Circuit, and it may take years for the ultimate outcome to be known. Similar issues are being raised in other pending litigation, and future court decisions could expand, narrow, or reject aspects of the ruling.

It is important to understand that Kwong should not be treated as a settled conclusion that taxpayers are automatically entitled to refunds or abatements. The broader application of the case — including its impact on refund claims, penalty abatements, underpayment interest, overpayment interest, and other COVID-era penalty and interest issues — may ultimately depend on taxpayer-specific facts, future IRS guidance, and appellate outcomes.

Under the court’s reasoning in Kwong, the three-year statute of limitations on refund claims — measured from the extended deadline of July 10, 2023 — closes on July 10, 2026.

National Taxpayer Advocate Erin Collins has emphasized that relief will not happen automatically. Most taxpayers who wish to preserve their rights must file a refund claim, abatement request, or protective claim — generally on or before July 10, 2026. As Collins wrote:

“My overriding goal is to get the word out to as many taxpayers as possible and to avoid disparate results between the ‘well advised’ and the unaware.”

The applicable deadline may vary based on the type of claim, the tax period involved, assessment and payment dates, prior IRS action, pending examination or litigation status, and applicable limitation rules. Not every taxpayer will share the same deadline, and some claims may already be time-barred.

The potential impact of Kwong is broad. Because COVID-19 was a nationwide disaster declaration, the geographic qualification is met for virtually every U.S. taxpayer. Affected parties may include individuals, corporations, partnerships, S corporations, LLCs, trusts, estates, and nonprofits.

The following situations may warrant a closer look:

Answering “yes” to any of these does not mean you are entitled to relief — but it does mean your situation may warrant professional review.

The IRS will not issue refunds or abate penalties and interest on its own initiative. If a claim is required and the deadline is missed, the refund opportunity may be permanently lost.

A protective claim — typically filed using IRS Form 843, Claim for Refund and Request for Abatement — can preserve potential rights while the appellate process plays out. Filing one costs relatively little, but failing to file could foreclose any future recovery.

Because obtaining IRS transcripts and reviewing assessment and payment history takes time, taxpayers who believe they may be affected should contact their tax advisor well before July 10, 2026, to allow adequate time for evaluation and, if appropriate, the preparation and filing of a claim.

If you think the Kwong decision may be relevant to your situation, our tax team is ready to help. We can review your IRS account history, evaluate whether a refund claim, abatement request, or protective claim may be appropriate, and guide you through the filing process before the deadline.

Don’t wait — the July 10, 2026, deadline is approaching fast. Because transcript retrieval and analysis take time, early action is critical.

Contact Sensiba today to schedule a consultation and find out if you may be eligible for COVID-era penalty and interest relief.

This article is provided for general informational purposes only and does not constitute tax or legal advice. It is not intended to convey that any particular taxpayer is entitled to a refund or abatement, that a claim should be filed, or that any specific deadline applies. The developing legal issues surrounding Kwong are complex, and the outcome remains uncertain. Taxpayers should consult with a qualified tax professional to evaluate their individual circumstances, determine whether any claim may be appropriate, and understand the applicable deadlines and limitations.

Any review, analysis, or preparation of a refund claim, abatement request, or protective claim would require a separate professional engagement.