In Kwong v. United States, the Court of Federal Claims delivered a significant win for taxpayers by ruling that the federal COVID-19 disaster declaration automatically suspended all federal tax deadlines nationwide from January 20, 2020, through July 10, 2023. This effectively invalidates billions of dollars in late penalties and interest assessed by the IRS during that 3.5-year window. Because the IRS has appealed the decision, taxpayers must file a protective refund claim by July 10, 2026, to freeze the statute of limitations and preserve their legal right to a refund while the litigation plays out in appellate court.
The Legal Dispute: How the IRS Overstepped Congressional Mandates
The Kwong case centers on a structural breakdown between statutory mandates and administrative implementation during a national emergency.
- The Underlying Facts: The plaintiff taxpayers faced substantial late penalties and underpayment interest levied by the IRS for tax returns and payments that were delayed by the severe operational, financial, and physical disruptions of the pandemic. The above mentioned taxpayers sued, arguing that they were entitled to a statutory extension under Covid relief legislation, free from late assessments because the rolling national emergency automatically shielded them from delinquency penalties.
- The IRS Argument: The government argued that its administrative relief measures (such as shifting individual deadlines to July 15 in 2020) were the definitive limits of pandemic-related extensions. Relying on its own Treasury Regulations, the IRS maintained that all automatic disaster extensions were bound by a strict, one-year hard cap, meaning a 3.5-year blanket deadline extension was an unauthorized distortion of the tax code.
- The Court’s Core Holding: Judge Molly Silfen rejected the IRS’s restrictive framework. Applying strict textualism, the court held that under the pre-November 2021 version of IRC § 7508A(d), the onset of a federally declared disaster mandates a self-executing, non-discretionary suspension of tax timelines. Because the statute states deadlines “shall be disregarded” for the total duration of the disaster plus 60 days, the IRS lacked the constitutional authority to truncate that window with a regulatory one-year ceiling.
- The Ripple Effect on Reopening Claims: Beyond standard penalty reversals, the National Taxpayer Advocate (NTA) has emphasized that Kwong effectively expands the statute of limitations for previously closed or time-barred filings. If Kwong stands, refund suits that were dismissed for lateness may be legally resurrected, and refund claims that taxpayers assumed were expired may be completely valid [NTA-IV].
Impacted Entities: Affected Forms, Penalties, and Interest Charges
Because the COVID-19 declaration was a comprehensive, nationwide disaster, the legal mechanism under IRC § 7508A(d) applies across the entire spectrum of tax compliance. The National Taxpayer Advocate has noted that any taxpayer entity hit with penalties or interest during the 3.5-year window should audit their liabilities.
| Tax Return Type | Primary Affected Form(s) | Impacted Penalty & Interest Types |
| Individuals | Form 1040, 1040-SR | Failure-to-File (FTF), Failure-to-Pay (FTP), and Estimated Tax (ES) underpayment penalties. |
| Partnerships & LLCs | Form 1065 | Per-partner, per-month late filing penalties (which accrue rapidly for multi-tiered structures). |
| S-Corporations | Form 1120-S | Per-shareholder monthly late filing penalties and international reporting cross-assessments. |
| C-Corporations | Form 1120 | Standard FTF/FTP percentages, quarterly estimated tax shortfalls, and accumulated underpayment interest. |
| Trusts & Estates | Form 1041/706 | Fiduciary tax delays, late K-1 issuance penalties, and late payment interest. |
| Tax-Exempt / Non-Profits | Form 990 Series | Daily late-filing sanctions for public charities and private foundations. |
| Employers / Businesses | Form 941, 940 | Payroll tax late-deposit and late-filing assessments. Also covers Employee Retention Credit (ERC) wage-disallowance interest corrections. |
Action Guide: Identifying Penalties and Preparing Protective Filings
The IRS is actively defending its position on appeal and will not automatically issue refunds. Taxpayers must execute a protective claim before the statute of limitations runs out.
1. Secure Your Account Transcripts
Order an IRS Account Transcript for the affected tax years (2019, 2020, 2021, and 2022).
- For individuals/sole proprietors, retrieve this instantly via the IRS Online Account Portal.
- For corporate, partnership, or fiduciary entities, pull transcripts using the IRS Transcript Delivery System (TDS) or via Form 8821.
2. Identify the Target Transaction Codes (TCs)
Review the “Transactions” section of the transcript for these specific entries issued between January 20, 2020, and July 10, 2023:
- TC 166 / TC 160: Penalty for Late Filing
- TC 276 / TC 270: Penalty for Late Payment
- TC 176 / TC 170: Estimated Tax Penalty
- TC 196 / TC 190: Interest Charged (Underpayment Interest)
3. Complete and Submit Form 843
For each individual tax period or return type where a penalty or interest was charged, file a separate IRS Form 843 (Claim for Refund and Request for Abatement). Ensure that the form is distinctly marked as a “Protective Refund Claim Pursuant to Kwong v. United States” across the top header to ensure the IRS preserves the claim pending final appellate resolution.
The Imminent Cutoff: Why July 10, 2026, is a Hard Deadline
The standard three-year window from the extended July 10, 2023, deadline makes July 10, 2026, the absolute cutoff for a substantial portion of affected filings. If your claim is not postmarked or electronically received by that date, your legal right to recover these pandemic-era assessments will be permanently barred under IRC § 6511.
Summary of Steps to Secure Your Potential Refund
To successfully protect and secure your potential refund before the looming statutory deadline, taxpayers must complete the following core workflow:
- Audit Historical Accounts: Pull IRS transcripts for all individual, business, corporate, and fiduciary entities covering tax years 2019 through 2022.
- Quantify Pandemic-Era Liabilities: Isolate and list all transaction codes relating to late-filing fees, late-payment penalties, estimated tax shortfalls, and underpayment interest issued during the 3.5-year window.
- Execute Protective Documentation: Prepare and sign a separate Form 843 for every unique tax form and period identified, ensuring the required Kwong legal disclosure text is attached to each. https://www.irs.gov/pub/irs-pdf/f843.pdf
- Timely File Before the Deadline: All completed forms must be submitted to the IRS, via certified mail, dated on or before July 10, 2026.
Please reach out to us if you have any questions or require guidance on executing these steps.
Additional Strategic Considerations: Recovering Forgotten and Time-Barred Refunds
While initial public discussion focused solely on reversing late penalties, an additional thing to keep in mind is how the legal logic of Kwong completely reshapes timelines for unclaimed tax refunds and amended filings from the pandemic era.
- Extended Window for Original Refunds: For individuals or entities that completely missed filing a tax return originally due during the pandemic (such as a 2019 return), Kwong implies that the period to submit that original return and claim an overpayment remained open much longer than normal rules dictate.
- The Lookback Exception (P.L. 119-64): Under the Disaster Related Extension of Deadlines Act (passed in late 2025), Congress adjusted the statutory lookback periods to better match automatic extensions. If the Kwong precedent is upheld on appeal, this legislative sync prevents the IRS from capping your refund based on traditional two- or three-year lookback limitations, keeping the door open for full financial recovery.
Conclusion
The Kwong v. United States ruling represents a fundamental challenge to the IRS’s administrative authority during nationwide disruptions, potentially offering historic financial relief to millions of impacted taxpayers. However, because the outcome hinges on the pending appeal in the Federal Circuit, passive waiting is a high-risk strategy that will result in the permanent forfeiture of your rights once the three-year window lapses. Initiating your transcript audits and submitting protective claims before the absolute July 10, 2026, deadline is the only definitive way to lock in your eligibility, turning an unresolved legal battle into a concrete, preserved opportunity for financial recovery.
Furthermore, as businesses untangle their broader pandemic-era tax accounts under Kwong, employers affected by COVID-19 should carefully consider their eligibility for a protective refund claim. Each employer is unique in their operations, so eligibility must be determined based on an employer’s individual circumstances.
DISCLAIMER: The IRS continues to publish additional guidance and instructions regarding protective refund claims. As such, information presented is subject to change.
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