The COVID Interest & Penalties Refund Window (Kwong v. United States)

If you paid federal income tax between 2020 and 2022, and you’re reading this before July 10, 2026, there’s a good chance you’re owed a refund of at least hundreds, and for some taxpayers, millions of dollars. The catch is you have to file something to claim it, and the IRS is not going to remind you.

It seems the COVID-19 pandemic is still finding ways to affect taxpayers. NIL deals, colleges, and now, another rather large one, interest on your taxes.

What Changed

In 2019, Congress enacted IRC § 7508A(d), which mandated automatic postponement of federal tax deadlines, including the accrual of underpayment interest, during presidentially declared disasters. Congress probably didn’t picture a three-year pandemic when it wrote that statute. But two separate courts have now decided that’s exactly what it covers.

In Abdo v. Commissioner, 162 T.C. 148 (2024), the Tax Court held that § 7508A(d) provides automatic, mandatory relief of the deadlines outlined in § 7508(a). The court invalidated the Treasury regulation that the IRS had been hiding behind.

In Kwong v. United States, 179 Fed. Cl. 382 (2025), the Court of Federal Claims went further. It held that the one-year cap the IRS pulled out of Reg. § 301.7508A-1(g)(3)(ii) is not in the statute. After Loper Bright, the court declined to defer to it. The court also agreed that the federal COVID-19 disaster period began January 20, 2020, and ended May 11, 2023, which, under § 7508A(d)’s 60-day tail, pushed the mandatory postponement period out to July 10, 2023.

What this effectively means: every federal income tax deadline that fell inside that window should have been pushed to July 10, 2023. The IRS did not see it that way, and it accrued interest and penalties as if the statute didn’t exist.

The IRS’s Position

The IRS took the position that its administrative notices, a post hoc Treasury regulation issued in June 2021, and the one-year cap in § 7508A(a) defined the outer limits of available relief. Two courts have now rejected that position. The IRS has not acquiesced. The Department of Justice is expected to appeal Kwong to the Federal Circuit, but the last date to do so is May 16th, 2026.

In Mayronne v. Commissioner (T.C. Mar. 13, 2026), the IRS quietly stipulated to a settlement that carved interest out for the tail end of the postponement period, though it pointedly did not cite § 7508A. In a separate docketed case, IRS counsel refused to include similar language. So the agency’s posture is, at best, inconsistent.

Meanwhile, the litigation is escalating. Meta Platforms has put the issue in front of the Tax Court in a case involving over $15.8 billion in deficiencies. Western Digital is suing for a refund of more than $20 million in COVID-era underpayment interest in the Court of Federal Claims. The IRS is fighting both.

What This Means For You

If you paid IRS late-filing, late-payment, estimated-tax penalties, or related underpayment interest on a return originally due between January 20, 2020, and July 10, 2023, there’s a real path to a refund.

If you haven’t paid yet, there may still be a path to abate or remove the interest before it gets collected.

Because the IRS disagrees with both Abdo and Kwong, the practical move right now is to file a protective refund claim with the IRS, preserving your right to a refund if the courts ultimately settle this in the taxpayer’s favor. It is manual. It is painful. And it has a hard deadline.

How Does This Work?

The vehicle is Form 843, “Claim for Refund and Request for Abatement,” filed under IRC § 6511 and complying with Reg. § 301.6402-2.

A few things to know going in:

1. You’ll likely need IRS transcripts to file the claim properly (to verify what was assessed, what was paid, and when)
2. It must be filed before July 10, 2026. For certain C corporations in particular, the COVID-19 mandatory postponement tolled the § 6511 refund claim limitations period, and the three-year clock runs out on that exact date.
3. Expect a fight even after filing. The IRS’s current posture suggests it will disallow these claims. That triggers the two-year window to bring a refund suit in U.S. district court or the Court of Federal Claims,  provided you have fully paid the interest in question (the Flora full-payment rule, as applied in Magnone and Shore).

If you’re still in examination or have an open Tax Court case, there’s an additional avenue worth exploring: a settlement carveout in the style of Mayronne, where the disputed COVID-period interest is simply excluded from the stipulated decision.

The IRS has done it before. Whether they’ll do it again is a matter of the right facts and the right negotiation.

Could Congress or Treasury Just Fix This?

Yes and no.

Can Congress step in, “push the button,” and direct refunds for everyone affected? Yes. Will they? I highly doubt it.

Could the President direct the Treasury to do it administratively? Yes. Possible, but at this point, I think highly unlikely.

That means the realistic path is the one the courts have already opened: file the protective claim, preserve the right, and be prepared to litigate or appeal if the IRS won’t pay.

The Bottom Line

The deadline is July 10, 2026, a hard backstop for a meaningful slice of these claims. If you paid underpayment interest, failure-to-file, failure-to-pay, or estimated-tax penalties on a return originally due between January 20, 2020, and July 10, 2023, this is worth a conversation.

Don’t wait to find out whether Kwong survives the appeal. By the time it does, the door to file may already be closed.

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