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Potential Refund Opportunity Following Kwong v. United States

Potential Refund Opportunity Following Kwong v. United States

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    A recent federal court decision may present an opportunity for taxpayers to recover certain IRS interest and penalties assessed during the COVID-19 pandemic.

    What Happened

    In Kwong v. United States, the U.S. Court of Federal Claims ruled that a provision of the tax code (IRC §7508A) required the IRS to pause many tax deadlines nationwide for the entire duration of the COVID-19 disaster declaration—from January 20, 2020 through July 10, 2023. This pause period is approximately 39 months, far longer than the shorter extensions the IRS had put in place through its administrative guidance.

    What This Means for You

    As a result of the Court’s holding, the IRS may not have been permitted to charge certain penalties and interest during this extended period. As a result, individuals and businesses may have grounds to seek refunds or request abatements.

    You may be impacted if:

    • You paid federal tax balances where interest or penalties continued to accrue during 2020–2023, even if the underlying tax liability was from an earlier year.
    • You filed a return late during 2020–2023 and paid failure-to-file or failure-to-pay penalties.
    • You filed a refund claim that the IRS denied as untimely—the Kwong decision may extend the filing window and provide a basis to revisit that denial.
    • You overreported taxes and were unable to amend a return because the statute of limitations expired.

    Please note that estimated tax penalties are generally not covered by this relief.

    Timing Considerations

    Refund claims are subject to strict statutory deadlines—typically the later of:

    • Two years from the date of payment, or
    • Three years from the original return due date

    For many taxpayers, the applicable deadline may be as early as July 10, 2026, which is now less than sixty days away. We strongly encourage you to contact your FD tax advisor promptly if you believe any of the above situations apply.

    Ongoing Uncertainty

    It is important to note that the government has appealed the Kwong decision. While the outcome remains uncertain, filing a protective claim now may preserve your rights while the matter gets resolved.

    Next Steps

    Given the potential impact of the Kwong decision and the limited window to act, a proactive review is an important first step. An assessment can help identify opportunities for refund or abatement and determine whether protective filings should be considered.

    To get started, please contact your FD tax advisor or reach out to newsletters@frazierdeeter.com.

    Contributors

    Vadim Ronzhes, Partner, Frazier & Deeter Advisory, LLC

    Jenni Cordaro, Tax Manager

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