The IRS may owe you a refund.

If so, you need to act now to protect your right to collect it.

In a major taxpayer victory, the Court of Federal Claims ruled that a COVID-era law postponing many tax filing and payment deadlines applied automatically to all taxpayers during the pandemic disaster period.

The decision could open the door for millions of taxpayers to recover IRS penalties and interest assessed or paid between January 20, 2020, and July 11, 2023. Potential refunds could include failure-to-file penalties, failure-to-pay penalties, estimated tax penalties, and interest paid on underpayments.

But you and your fellow taxpayers shouldn’t wait. The ruling in Kwong v. United States is likely headed for appeal, and the IRS will almost certainly fight efforts to issue refunds. To preserve your rights while the courts sort out the issue, you should consider filing protective refund and abatement claims right now.

The Tax Deadline Postponement

In December 2019—months before COVID-19 was declared a federal disaster—Congress enacted a law intended to give taxpayers automatic relief from tax deadlines whenever they faced a federally declared disaster, sparing them from having to wait on the IRS to exercise its discretionary authority.

The law provided that, for qualified taxpayers in a disaster area, the period beginning on the earliest incident date specified in the disaster declaration and ending 60 days after the latest incident date specified would be disregarded in determining whether time-sensitive acts—including filing tax returns and refund claims—were performed on time.

The IRS tried to limit the application of this law by enacting a regulation providing that the postponement applied only at the IRS’s discretion and could last no more than one year. 2 This statute was amended in 2021 to limit such postponements to 60 days from the beginning of a disaster. 

Kwong Case

The case arose from a lawsuit filed by California real estate businessman Terry Kwong in the Court of Federal Claims in February 2023. Kwong sought a refund of penalties related to underpaid taxes for 2007, 2010, and 2011.

The IRS argued that Kwong filed his refund suit too late and asked the court to dismiss the case on summary judgment. Under the normal rules, Kwong had to file his lawsuit within two years after the IRS formally disallowed his refund claims in October 2020—meaning his deadline would have expired in October 2022.

Kwong argued that the filing deadline was automatically postponed by Congress’s COVID-19 disaster legislation.

President Trump declared the COVID-19 pandemic a nationwide presidential disaster for all 50 states commencing January 20, 2020, and President Biden didn’t formally end the disaster until May 11, 2023. Kwong claimed that the filing deadline was postponed for the duration of the pandemic plus 60 days—thus, he had until July 11, 2023, to file his refund suit.

The Court of Federal Claims agreed with Kwong. The court refused to apply the IRS regulation that made the postponement discretionary and limited it to one year, holding that the IRS misread the plain meaning of the 2019 postponement statute.

The court found that the disaster postponement was mandatory and self-executing (automatic), and it continued for the entire COVID disaster period plus 60 days. The court also held that the 2021 amendment to the law limiting disaster postponements to 60 days was not retroactive, so it did not apply to the COVID disaster postponement.

Since the COVID disaster declaration began January 20, 2020, and ended May 11, 2023, Kwong had until 60 days later to file his refund suit—July 11, 2023.

Kwong was not the first case to address the 2019 disaster postponement statute. In 2024, the Tax Court held in Abdo that COVID disaster postponement was mandatory and automatic, and that the IRS regulation limiting the postponement period was invalid. However, the Tax Court did not establish the precise dates of the postponement

period. Abdo was settled without appeal in late 2024.

Refunds May Be Owed to Millions of Taxpayers

The Kwong and Abdo cases could have major implications for millions of taxpayers. Although these cases were about the deadlines for filing a refund suit and for Tax Court petition, respectively, the statute involved also postponed the time for 

1. filing any return of income, estate, gift, or excise tax;

2. paying any tax or installment;

3. filing a refund claim or bringing suit for refund;

4. determining “the amount of any interest, penalty, additional amount, or addition to the tax”; and

5. “the amount of any credit or refund.”

Since the cases were about filing deadlines, neither Kwong nor Abdo expressly held that penalties and interest were postponed during the COVID disaster period. But there is a strong argument that the broad statutory language—“the amount of any interest, penalty, additional amount, or addition to the tax”—means just that.

The IRS is likely to argue otherwise. This issue will have to be determined by the courts on appeal.

If the COVID disaster postponement does apply to “any interest, penalty, additional amount, or addition to the tax,” then taxpayers would be entitled to refunds for all the following penalties and interest paid between January 20, 2020, and July 10, 2023:

1. Failure-to-file penalties, including Form 1099 series information returns, Form W-2, and Affordable.

2. Care Act forms.

3. Failure-to-pay penalties.

4. Estimated tax penalties.

5. Accuracy-related penalties.

6. Interest paid on underpayments.

7. Failure-to-deposit penalties.

8. Compounded failure-to-pay penalty interest.

Example. Luther owed $100,000 in income taxes due on April 15, 2020. He timely filed his return, but he didn’t pay the tax due until July 1, 2023. The IRS assessed a $19,000 failure-to-pay penalty (0.5 percent per month) and $20,000 in underpayment interest. Under the Kwong decision, the deadline for paying Luther’s 2020 taxes wasextended until July 11, 2023. Since he paid on July 1, 2023, he doesn’t owe the failure-to-file penalty. The interest paid on the underpayment should also have been suspended during the COVID disaster period. He is entitled to a refund of $39,000.

In addition, taxpayers who have not yet paid penalties or interest that accrued during January 20, 2020, through July 11, 2023, may seek relief (technically, abatement) of those amounts.

The IRS may also be prevented from assessing penalties and interest during the COVID disaster period for cases currently in litigation.

Arguably, even where the underlying liability arose before the COVID disaster period began, taxpayers should not have had to pay interest or penalties during that period. IRS regulations prohibit this outcome, but they might not control if Kwong is upheld on appeal. So, this is an open question. 

How much money are we talking about here? Potentially, a massive amount. For fiscal year 2022 alone, the IRS imposed $12.2 billion in estimated-tax penalties and more than $16.2 billion in failure-to-pay penalties, part of the $73.6 billion in civil penalties assessed that year—of which roughly $50.9 billion was later abated, leaving roughly

$22.7 billion in net penalties.

But don’t count on spending any refunds just yet.

Remember, the Kwong case was decided by the Court of Federal Claims, a specialized court with national jurisdiction located in Washington, D.C., that deals only with monetary claims against the U.S. government. This court’s decisions are not legal precedents. Neither the IRS nor other courts are bound to follow the Kwong decision for taxpayers other than Kwong himself.

The IRS can and likely will appeal the Kwong decision to the Court of Appeals for the Federal Circuit, which could reverse it. As of May 2026, there has not yet been a final, appealable judgment entered in the Kwong case in the Court of Federal Claims, but the parties have taken steps to enable an appeal. 

In the meantime, affected taxpayers need to preserve their right to a refund (or abatement), and do so quickly.

Determining Whether You Could Be Owed a Refund

As a taxpayer, the first thing you (or your advisors) should do is determine whether you could be owed a refund or need to abate yet-to-be-paid penalties and interest. You need to check whether the IRS charged or collected penalties or interest from you tied to filing, payment, estimated tax, deposit, refund claim, or other tax deadlines between January 20, 2020, and July 10, 2023.

To check, look at your IRS account transcripts for tax years 2019, 2020, 2021, and 2022. Also review transcripts for any earlier years where penalty and interest charges accrued between January 20, 2020, and July 11, 2023. IRS account transcripts can be accessed at the IRS website.

Flag every penalty and interest entry posted during the disaster window. For example, check for penalty codes 166 (late filing), 276 (failure-to-pay), 170 and 176 (estimated tax penalty), 196 and 340 (interest charged), and 276 (penalty assessed by examination). Also check for penalty abatements (codes 340 and 341).

Businesses should also check payroll, corporate, partnership, excise, estate, gift, and other tax filings with due dates during the COVID disaster postponement period. Also, check any IRS penalty notices, balance-due notices, payment-plan records, computer generate (CP) notices, and refund-claim disallowance letters.

Filing a Protective Refund Claim

Taxpayers who could be owed a refund should file a protective refund claim with the IRS on Form 843, Claim for Refund and Request for Abatement. You can also file a protective claim for abatement of interest and penalties assessed but not yet paid.

A protective claim for refund can be filed where a taxpayer’s right to a refund (or abatement) is contingent on future events (such as the outcome of litigation) and may not be determinable until the time for filing a claim for refund expires.

The protective claim for refund tolls (freezes) the statute of limitations until the contingency is resolved. Thus, the protective claim will preserve taxpayers’ rights to claim a refund if the Kwong decision is ultimately upheld on appeal. Taxpayers who don’t file a timely protective claim will get nothing.

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.19 If Kwong and Abdo suspend the statute of limitations through July 10, 2023, taxpayers have three years after that date to file their protective refund claims. This means you must file your claim by July 10, 2026.

Taxpayers with ongoing IRS examinations, appeals proceedings, or litigation may have open statutes for the applicable years that provide additional time to claim a refund.

 Completing and Filing Form 843

A protective claim for refund does not have to state a particular dollar amount or demand an immediate refund. To be valid, it must 

 ◉  identify and describe the contingencies affecting the claim,

 ◉ clearly alert the IRS to the essential nature of the claim, and

 ◉ identify the specific year(s) for which a refund is sought.

Here are some pointers to complete a protective refund claim on Form 843:

◉ On the top of Form 843, write: “Protective Refund Claim Pursuant to Kwong v. United States.”

◉ It is not necessary to provide the exact amount to be refunded at this stage. You can state in line 2: “Protective claim—exact amount to be determined from IRS account transcripts and final resolution of Kwong-related litigation.” But if you desire, you can calculate the amount and attach copies of the account transcripts.

◉ In line 7, check the “other” box and state: “Interest and penalty refund/abatement based on recalculation of interest and penalties under IRC Section 7508A(d).”

The place to alert the IRS to the nature of the claim is under line 8. Here’s an example:

This is a protective claim for refund and/or abatement of penalties, additions to tax, and interest assessed or collected for the tax period identified above. The claim is based on Kwong v. United States, 179 Fed. Cl. 382 (2025) and Abdo v. Commissioner, 162 T.C. 148 (2024), which held that the 2019 version of IRC Section 7508A(d), which controlled for COVID-era claims, mandated postponement of tax filing and payment deadlines during the COVID-19 disaster period plus 60 days. Both cases rejected application of Treas. Reg. Section 301.7508A-1(g)(3)(ii), which purported to cap the postponement period to one year.

Kwong v. United States held that the COVID-19 disaster period extended from January 20, 2020, through July 11, 2023. IRC Section 7508A(a)(2)(d) (2019) provided that the disaster period “shall be disregarded” for purposes of determining “the amount of any interest, penalty, additional amount, or addition to the tax.” The taxpayer’s [return due date/payment due date/penalty assessment date] fell within the COVID-19 disaster period, and therefore the [interest/penalty] assessed or denied is contrary to the mandatory relief provided by statute. The taxpayer requests that the IRS hold this claim pending final resolution of the Kwong issue and allow taxpayer to supplement the claim as needed to determine the exact refund amount.

The protective refund claim must be filed on paper, personally signed by the taxpayer, and mailed to the address listed in the instructions for Form 1040X, under “Where To File.”

The understaffed IRS could be inundated with thousands of paper-filed protective refund claims. It’s highly advisable to mail the claim by certified mail. This makes it virtually impossible for the IRS to later successfully claim that it never received your protective refund claim.

If multiple tax years are involved, file a separate Form 843 for each year. 

Once you’ve filed your protective refund claim, prepare to wait.

Generally, the IRS will delay action on a protective claim until the contingency involved is resolved. Thus, it will likely not act until the Kwong litigation and other similar litigation are resolved on appeal. Once these cases are resolved, the IRS may obtain additional information necessary to process the claim. It could take years for all the appeals to be resolved and for the IRS to process and pay any refunds that are ultimately due.

Takeaways

Here are five takeaways from this article.

1. The Court of Federal Claims held in Kwong v. United States that a 2019 statute postponed tax filing and payment deadlines during the COVID-19 disaster plus 60 days. This period lasted from January 10, 2020, through July 10, 2023.

2. Under the logic of Kwong v. United States, the IRS should not have required taxpayers to pay penalties and interest during the COVID-19 disaster period—January 10, 2020, through July 11, 2023.

3. Taxpayers may be entitled to refunds or abatements of failure-to-file, failure-to-pay, and estimated-tax penalties, as well as interest on underpayments, assessed during the disaster period.

4. Taxpayers should check their IRS account transcripts for 2019-2022, and possibly for earlier years if penalties or interest on those earlier years accrued between January 20, 2020, and July 11, 2023.

5. Taxpayers who paid or were assessed penalties or interest during the disaster period should file a

protective refund/abatement claim before July 10, 2026, to preserve their rights pending resolution of the legal issues involved by the courts.

Red note alert. Don’t sit on this. July 10, 2026, is right around the corner. If you miss this deadline, no refund for you.