Kwong v. United States, Explained: How a 2025 Federal Court Ruling May Unlock COVID-Era IRS Refunds
TL;DR
A plain-English breakdown of the Court of Federal Claims decision interpreting IRC § 7508A(d) — what it ruled, what it did not, and how the pending appeal affects taxpayers who plan to file Form 843 by July 10, 2026.
In one paragraph
Kwong v. United States, decided in November 2025 by the U.S. Court of Federal Claims, held that IRC § 7508A(d) automatically suspended IRS filing and payment deadlines for the entire COVID-19 federal disaster period — January 20, 2020 through July 10, 2023. The court ruled the suspension applies by operation of law, with no further IRS action required. The U.S. government has filed a notice of appeal. Taxpayers who paid filing-related penalties or interest during that window may be entitled to a refund, but the standard three-year refund claim window expires July 10, 2026. Filing a protective claim on Form 843 before that date may preserve refund rights regardless of how the appeal resolves.
What the court ruled
The Court of Federal Claims held that the disaster-relief provision Congress added in 2019 — 26 U.S.C. § 7508A(d) — operates automatically once the President declares a federal disaster, without requiring further IRS guidance. Because the COVID-19 emergency was a federally declared disaster from January 20, 2020 through July 10, 2023, the court found that filing and payment deadlines for affected taxpayers were suspended for that entire window.
The plaintiff, Steven Kwong, had been assessed roughly $5,000 in failure-to-file and failure-to-pay penalties on a 2020 return that was filed late in 2021. Kwong argued he was an "affected taxpayer" under § 7508A(d) because the COVID-19 disaster declaration covered his geographic area. The IRS argued the provision required additional Treasury action to take effect — action it never took for COVID. The court sided with Kwong, holding the statute is self-executing.
The opinion relied heavily on the plain text of the statute, which says the deadline relief "shall be" granted to affected taxpayers in a federally declared disaster — mandatory language, not discretionary. The court declined to defer to the IRS's contrary reading. Citation: Kwong v. United States, 179 Fed. Cl. 382 (Nov. 2025).
Why this matters for taxpayers
According to IRS Publication 55B (the IRS Data Book), the IRS assessed tens of millions of failure-to-file and failure-to-pay penalties on COVID-era returns. The National Taxpayer Advocate, in a blog post dated April 30, 2026, estimated that "tens of millions of taxpayers may be eligible for significant tax refunds" if the Kwong reading holds.
The Advocate's office specifically noted that the IRS has not committed to issuing automatic refunds based on Kwong, and that taxpayers "will likely need to file a refund claim themselves to preserve their rights" — especially given the strict three-year statute of limitations under IRC § 6511. For most COVID-era penalty assessments, that three-year window closes on July 10, 2026 — three years after the COVID-19 federal disaster declaration ended.
The statutory text at the center of the case
IRC § 7508A(d), titled "Mandatory 60-day extension," reads in relevant part:
"In the case of any taxpayer determined by the Secretary to be affected by a federally declared disaster … the period … shall be disregarded in determining, in respect of any tax liability of such taxpayer … whether any of the acts described in paragraph (1) of subsection (a) were performed within the time prescribed."
Two phrases drove the court's holding. First, "shall be disregarded" — mandatory language. Second, "determined by the Secretary to be affected" — the IRS argued this meant the IRS had to make a case-by-case determination, but the court read it together with subsection (b), which lets the IRS publish a single determination for an entire disaster area. The COVID-19 disaster declaration covered the entire United States, so the determination requirement was satisfied by the disaster declaration itself.
What the IRS argued vs. what the court ruled
| Issue | IRS position | Court's holding in Kwong |
|---|---|---|
| Does § 7508A(d) operate automatically when a federal disaster is declared? | No. Congress required additional IRS-issued guidance before relief takes effect. | Yes. The statute is self-executing once the President declares a federally declared disaster covering the taxpayer's location. |
| Did the IRS's existing COVID notices (Notice 2020-23, Notice 2022-36, Notice 2024-07) satisfy § 7508A(d)? | Yes — those were the relief vehicles Congress contemplated. | No. Those notices granted partial, time-limited relief, not the full statutory suspension § 7508A(d) requires. |
| What about taxpayers outside the immediate FEMA-designated zones? | Not "affected" under the statute. | The COVID-19 declaration was nationwide. The court read "affected" to include any taxpayer to whom the IRS could reasonably extend relief under the disaster declaration. |
| Can a taxpayer recover penalties already paid? | Refund claims must follow the IRS's existing administrative process; no special Kwong remedy. | Yes — a Form 843 refund claim filed within the § 6511 limitations window may recover penalties and interest assessed during the disaster window. |
The appeal — and why filing now still matters
The U.S. government filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit. As of the date this article was last updated, the appeal is pending. The Federal Circuit could affirm Kwong, reverse it, or remand for further proceedings. There is no public timeline for the decision.
Two practical implications:
- The three-year statute of limitations does not pause for the appeal. Under IRC § 6511, a refund claim must be filed within three years of the original return's due date (or two years from when the tax was paid, whichever is later). For most COVID-era penalty assessments, the deadline lands on July 10, 2026. If a taxpayer waits for the appeal and the deadline passes, no court ruling can revive the claim.
- A protective claim preserves the right to a refund without committing to a final dollar amount. The National Taxpayer Advocate has specifically recommended protective claims for Kwong-based filings — the claim is filed on Form 843 with the words "Protective Refund Claim Pursuant to Kwong Case" written across the top.
If the appeal upholds Kwong, a protective claim is already in the system and the IRS works through its backlog. If the appeal overturns Kwong, the protective claim simply fails — no out-of-pocket cost for the taxpayer under PenaltyBack's no-win, no-fee model. The downside scenario for filing is no different from the downside scenario for not filing.
Who may qualify under the Kwong reasoning
The Kwong opinion focused on individual failure-to-file and failure-to-pay penalties under IRC § 6651, but the court's reasoning — that § 7508A(d) suspends deadlines automatically — would, by its own logic, apply to any penalty whose computation depends on a deadline falling inside the January 20, 2020 to July 10, 2023 window.
Plausibly within the Kwong reasoning, depending on the taxpayer's specific facts:
- Failure-to-file penalties under § 6651(a)(1)
- Failure-to-pay penalties under § 6651(a)(2) and (a)(3)
- Estimated-tax penalties under § 6654 and § 6655 where the computation depends on a missed quarterly due date in the window
- Late-filing penalties on international information returns (Forms 8938, 5471, 5472, 1099, 1095) where the underlying due date fell in the window
- Underpayment interest computed against a payment date the taxpayer would otherwise have met within the suspended window
Whether a specific assessment qualifies depends on the date the IRS assessed the penalty, which return year it relates to, and whether the underlying due date fell within the disaster window. The fastest way to find out is to read the IRS account transcript for each affected year — transaction codes such as 166 (failure-to-file), 276 (failure-to-pay), and 196 (interest) can be cross-referenced with the disaster-window dates.
How this connects to Loper Bright (June 2024)
Kwong was decided about seventeen months after the Supreme Court's June 2024 ruling in Loper Bright Enterprises v. Raimondo, which overruled the four-decade-old Chevron doctrine of judicial deference to agency interpretations. Under Chevron, courts had been required to accept the IRS's reasonable reading of an ambiguous tax statute. After Loper Bright, courts read statutory text directly and decide for themselves what it means.
The Kwong court did not need to lean on Loper Bright heavily — the statutory text was unambiguous in its reading — but the post-Loper Bright environment made it easier for the court to reject the IRS's contrary interpretation without first navigating Chevron deference. Other tax cases involving IRS statutory interpretations are likely to follow a similar pattern.
Frequently asked questions
Does Kwong apply automatically to every COVID-era penalty?
No. The court held that the deadline suspension under § 7508A(d) is automatic, but a taxpayer who actually paid penalties or interest during the suspended window still has to file a claim to recover those amounts. The IRS has not committed to automatic Kwong-based refunds. The National Taxpayer Advocate has explicitly told taxpayers not to expect automatic relief.
The case is being appealed. Should I wait?
Most tax practitioners are advising taxpayers not to wait. The three-year statute of limitations under § 6511 does not pause for the appeal. If the deadline passes before the appeal resolves, no court decision can revive the claim. A protective claim — filed on Form 843 with the language "Protective Refund Claim Pursuant to Kwong Case" written across the top — preserves the right to a refund without requiring a final dollar figure.
What is the difference between a regular refund claim and a protective claim?
A regular refund claim asks the IRS to pay a specific amount based on a settled legal position. A protective claim preserves the right to a refund while the underlying legal question is still being litigated. Both use Form 843. The key difference is the wording at the top of the form and the explanation in line 7.
Why July 10, 2026 specifically?
The COVID-19 federal disaster declaration ended on July 10, 2023. Under IRC § 6511, a refund claim generally must be filed within three years of the original return's due date or two years from the date the tax was paid, whichever is later. For most COVID-era penalty assessments, the relevant deadline is three years after the disaster window ended — July 10, 2026.
Did the IRS issue any guidance after Kwong?
As of the last update of this article, the IRS has not issued post-Kwong guidance committing to refunds, automatic adjustments, or any new procedure. The two earlier COVID-era notices — Notice 2022-36 and Notice 2024-07 — provided narrow, time-limited relief that the Kwong court found insufficient to satisfy § 7508A(d). Taxpayers who already received relief under those notices may still qualify for additional refunds outside their narrow windows.
Does Kwong apply to international information return penalties?
The court's reasoning would, by its own logic, extend to penalties whose underlying due date fell in the suspended window — including late-filing penalties on Forms 8938, 5471, 5472, 1099, and 1095. International information return penalties are often assessed at $10,000 or more per missed filing, which means the potential refund per taxpayer can be substantially larger than for a typical individual income-tax penalty. The same statute-of-limitations rules apply.
If the appeal overturns Kwong, do I owe anything for filing a claim?
Under PenaltyBack's no-win, no-fee model, no. Our fee is a percentage of recovered refunds, payable only if a refund is recovered. If a protective claim is denied because Kwong is overturned on appeal, the taxpayer owes nothing.
Is PenaltyBack a law firm?
No. PenaltyBack is a product of TaxNow, an IRS-permissioned tax-data provider with view-only access to IRS account transcripts via the IRS e-Services system at the Circular 230 level. PenaltyBack identifies eligibility, prepares Form 843, and mails the claim on the taxpayer's behalf. PenaltyBack is not a law firm and does not provide legal advice. Consult a qualified tax professional or attorney for advice specific to your situation.