Court Ruling Could Open the Door to COVID-Related Tax Refund Claims

A recent federal court decision could have significant implications for taxpayers who incurred IRS penalties or interest during the COVID-19 pandemic, and many may not even realize they could be affected.

The issue stems from Kwong v. United States, a November 2025 court decision interpreting Internal Revenue Code Section 7508A(d), which governs filing and payment deadline extensions during federally declared disasters.

At the heart of the case is the court's interpretation that, because the COVID-19 federal disaster declaration remained in effect from January 20, 2020, through May 11, 2023, filing and payment deadlines were automatically postponed throughout that period, plus an additional 60 days, extending relief through July 10, 2023.

The government is appealing the case, but If that interpretation ultimately stands, many tax returns and payments due during the 3+ year disaster period would not have been considered late until after July 10, 2023. As a result, taxpayers may have been incorrectly assessed late-filing penalties, late-payment penalties and related interest.

The Internal Revenue Service (IRS) has not adopted the court's interpretation, however, tax professionals are encouraged to alert taxpayers and clients. Taxpayers must file a protective claim by July 10, 2026 to preserve their right to any potential refund before the statute of limitations expires. 

Who Could Be Affected?

The potential impact is broad. Individuals, businesses, estates, trusts, and taxpayers subject to employment, estate, gift, and various other return penalties could all be affected if they incurred penalties or interest during the disaster period.

Why Awareness Matters

In most cases, the IRS will not automatically issue refunds or remove penalties. Taxpayers generally must file a claim to preserve their rights.

For many taxpayers, the deadline to file a refund or protective claim is July 10, 2026, although some taxpayers with ongoing IRS examinations or litigation may have different timelines.

What Should Taxpayers Do

Because the issue is currently unsettled, taxpayers who believe they may have incurred penalties or interest during the COVID disaster period should review their circumstances with a tax professional. Filing a timely refund or protective claim may preserve the ability to seek relief if the courts ultimately uphold the Kwong decision.

While the final outcome remains uncertain, awareness is essential. Missing the filing deadline could mean permanently losing the opportunity to recover refunds that may ultimately be allowed.

The OSCPA will continue monitoring developments and provide updates as additional court decisions and IRS guidance become available.