COVID Penalty and Interest Abatement After July 10: An Update on Section 7508A Litigation

July 10, 2026, was widely publicized as the deadline for filing refund claims under Section 7508A. That date was calculated by adding the ordinary three-year limitations period to July 10, 2023, the end of the COVID disaster-relief period that Kwong held must be disregarded.[1] Although July 10, 2026, was important for many taxpayers, it does not limit every refund claim.

For example, a taxpayer facing a proposed deficiency on July 10 may not have any tax assessed or paid any corresponding interest or penalties. In that instance, there is no overpayment to recover. The same is true for a partner in a TEFRA partnership (pre-2018 tax years) awaiting a notice of computational adjustment or a partner in a BBA partnership (post-2018 tax years) waiting to receive a push-out statement and report the adjustment on its reporting-year return. A later assessment, payment, or partnership procedure starts a different limitations period.

The current litigation surrounding Section 7508A presents two questions: Does Section 7508A(d)toll a running limitations period or merely postpone deadlines falling within the disaster period? And must that period be disregarded when computing interest on liabilities attributable to earlier tax years? The cases arise through different procedures, but the Kwong appeal may shape both.

The Statutory Framework Behind the Cases

Congress enacted Section 7508A(d) in 2019.[2] For a “qualified taxpayer,” the incident-date period plus60 days “shall be disregarded in the same manner as” a period under Section 7508A(a).[3]

Section 7508A(a) identifies three categories of tax determinations for which a specified period may be disregarded. Paragraph (1) concerns whether certain time-sensitive acts were performed on time, including filing returns, paying tax, petitioning the Tax Court, filing refund claims, and bringing refund suits.[4] Paragraph (2) concerns the amount of interest, penalties, and additions to tax for periods after the disaster date.[5] Paragraph (3) concerns “the amount of any credit or refund.” The current cases principally address the first two paragraphs.

In Kwong, the Court of Federal Claims held that the mandatory period for COVID-19 disaster relief ran from January 20, 2020, through July 10, 2023. The court calculated the end date by adding the 60 days prescribed by Section 7508A(d) to May 11, 2023, the date FEMA designated as the end of the COVID-19 incident period. [6]

Tolling and Postponement Cases

Two related questions drive the current litigation. First, how long was the period that must be disregarded? Second, what does disregarding that period do to an otherwise applicable deadline? The second question is often described as the difference between tolling and postponement. Tolling stops the limitations clock and preserves whatever time remains when the disaster period ends. Postponement generally moves only a deadline that falls within the disaster period. Thus, a deadline falling shortly after July 10, 2023, might remain unchanged under a postponement approach but move substantially under a tolling approach. Because the COVID-19 period lasted nearly three and a half years, the distinction can determine whether a claim is timely.

The dispute over the period’s length arises from the relationship between subsections (a) and (d). Section 7508A(a) authorizes the Secretary to specify a discretionary period “of up to 1 year.” Subsection (d), however, defines a mandatory period beginning on the earliest incident date and ending 60 days after the latest incident date. Treasury’s regulation treats that mandatory period as a postponement and limits it to one year.[7] The government contends that subsection (d)’s direction to disregard the period “in the same manner as” a period specified under subsection (a) incorporates both subsection (a)’s postponement framework and its one-year limit. Taxpayers respond that subsection (d) defines its own period and borrows only the manner in which that period is disregarded, not subsection (a)’s limit on how long the period may last.

In Abdo, the Tax Court held that the version of Section 7508A(d) applicable to COVID-19 was mandatory and self-executing and incorporated all acts referenced through subsection (a).[8] The taxpayers’ petition was due on March 2, 2020, but was not mailed until March 17. Because subsection (d) required the period from January 20 through at least March 20, 2020, to be disregarded, the court held that the petition was timely.[9] The court did not, however, decide when the COVID-19 disaster period ended.[10]

In Kwong, the Court of Federal Claims answered the endpoint question left open in Abdo. The court rejected the regulation’s one-year cap and held that the mandatory COVID-19 period continued through July 10, 2023.[11] Applying Loper Bright, the court independently interpreted the statute and declined to give controlling weight to the regulation’s contrary limitation.[12] Because the taxpayer filed the refund suit on February 23, 2023, before the mandatory period ended, the court held that the suit was timely without deciding how Section 7508A(d) affects a deadline falling after July 10, 2023.[13]

On May 15, 2026, the government filed a notice of appeal in Kwong, and the matter was docketed in the Federal Circuit.[14] At the time of publication, however, the Solicitor General had not authorized the government to pursue the appeal. The Federal Circuit granted the government’s second extension request, making its opening brief due September 16, 2026. If the appeal proceeds, the Federal Court’s interpretation of Section 7508A(d) will bind the Court of Federal Claims and likely influence courts considering related issues elsewhere. Because Kwong involved a refund suit filed before July 10, 2023, however, the Federal Circuit may not need to decide how the statute affects a deadline that expired after the disaster period.

In BMW, the tolling-versus-postponement distinction is outcome determinative.[15] BMW filed its return on September 15, 2020, making September 15, 2023, the ordinary three-year deadline for a refund claim. It filed its claim 28 days later, on October 13, 2023.[16] Under the postponement approach, the claim is untimely because the ordinary deadline fell after the disaster period ended on July 10, 2023. Under the tolling approach, the disaster period is excluded from the limitations calculation and the claim is timely. The court did not decide which approach governs. It held consideration of the government’s motion to dismiss in abeyance pending the Kwong appeal.[17]

Interest cases

In Western Digital, an IRS examination and subsequent Tax Court litigation concerning the taxpayer’s 2008 tax year remained unresolved throughout the COVID-19 disaster period.[18] Interest continued to accrue on the resulting deficiency while that litigation was pending. After the case was resolved and the liability was paid, Western Digital filed a timely refund claim seeking approximately $20.8 million of interest attributable to the disaster period.[19] The central issue is whether section 7508A(a) (2), as incorporated through subsection (d), requires that period to be disregarded when computing interest even though the underlying tax was due years before the disaster. The government argues that interest relief applies only when the interest arises from a filing or payment deadline falling within the disaster period. Alternatively, it asks the court to stay the case pending the Kwong appeal.[20]

In Wepplo, the interest question is before the Tax Court under Section 7481(c) and Tax Court Rule 261 for tax years 2015 through 2017.[21] After a stipulated decision and full payment, the taxpayers moved to redetermine interest assessed for the COVID disaster period. Recognizing that the issue could affect a large number of taxpayers, the Court invited amicus briefs and stated that the parties should expect oral argument after briefing. Taxpayer-side amici argue that interest accrues and compounds daily under Sections 6601 and 6622, so disaster-period interest arose then even though the tax years were earlier.

Meta illustrates why Wepplo’s procedural posture matters.[22] In Meta, the court struck a pre-assessment interest claim because interest is not a “deficiency” in an ordinary deficiency case.[23] Wepplo followed a final decision, assessment, and payment; Meta had not reached those steps. The Meta order addressed jurisdiction, not the Section 7508A merits.

Refund claims after unresolved liabilities

For many unresolved cases, the three-year period measured from the filing of the return will expire before the tax deficiency, interest, or penalties are determined. Once those amounts are paid, Section6511(a) generally permits a refund claim within two years of that payment.[24] Thus, for some taxpayers, a payment made after July 10 may open a later refund-claim period.

Partnership proceedings may create different triggers. Under TEFRA (pre-2018 tax years), the IRS’s mailing of a notice of computational adjustment generally starts a special six-month period for the partner to file a refund claim challenging the resulting computation.[25] Under the BBA (post-2018 tax years) the identity of the claimant generally follows the payment. If the partnership pays an imputed underpayment, it generally is the claimant. If the partnership makes a Section 6226 push-out election, the partners report and pay the resulting tax and interest on their reporting-year returns. A partner may then pursue a refund based on its partner-level computation, subject to Section 6511.[26]

The practical point after July 10

July 10 was particularly important for taxpayers who had already paid tax, interest, or penal ties and therefore had an amount to recover through a refund claim. The position differs for liabilities still in examination, Appeals, or Tax Court. If the disputed amounts had not yet been assessed and paid, there may have been no overpayment—and no administrative refund claim—to file by July 10.

The Kwong appeal will address the length and scope of the mandatory period and may shape, although not necessarily resolve, the tolling question presented in BMW, Western Digital, and Wepplo may decide whether Section 7508A requires the disaster period to be disregarded when computing interest on liabilities from earlier tax years. If an administrative claim is available, it should be filed within the applicable period. If not, later payment, a final decision, or partnership procedure may supply the deadline. July 10 was significant, but for some taxpayers the relevant refund window may open later. In either event, the battle over interest and penalties accruing during the COVID-19 period appears to be in its infancy.

Footnotes

[1] Kwong v. United States, 179 Fed. Cl. 382, 389–90 (2025).

[2] Pub. L. No. 116-94, div. Q, § 205, 133 Stat. 2534, 3245–46 (2019).

[3] I.R.C. § 7508A(d)(1)–(2).

[4] I.R.C. §§ 7508A(a)(1), 7508(a)(1).

[5] I.R.C. § 7508A(a)(2).

[6] Kwong, 179 Fed. Cl. at 389–90; Major Disaster Declarations and Related Determinations: Expiration of COVID-19-RelatedMeasures, 88 Fed. Reg. 8,884, 8,885 (Feb. 10, 2023).

[7] I.R.C. § 7508A(a); Treas. Reg. § 301.7508A-7 1(b), (g)(3)(ii)(A).

[8] Abdo v. Commissioner, 162 T.C. 148 (2024).

[9] Abdo, 162 T.C. at 165–69.

[10] Id. at 169 n.13.

[11] Kwong, 179 Fed. Cl. at 387–90.

[12] Id.; see Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024).

[13] Kwong, 179 Fed. Cl. at 384, 389.

[14] Notice of Appeal, Kwong v. United States, No. 23-267 (Fed. Cl. May 15, 2026), ECF No. 47; Kwong v. United States, No. 2026- 1843, Docs. 12–13 (Fed. Cir. Aug. 10–11, 2026).

[15[ BMW (US) Holding Corp. & Subsidiaries v. United States, No. 25-1984T, 2026 BL 300497 (Fed. Cl. Aug. 5, 2026).

[16] Id. at 2–4.

[17] Id. at 13.

[18] Western Digital Corporation & Subsidiaries v. United States, No. 26-215T (Fed. Cl. filed Feb. 6, 2026).

[19] Defendant’s Response to Plaintiff’s Motion for Summary Judgment at 2–3, Western Digital, No. 26-215T (Fed. Cl. June 8, 2026), ECF No. 14.

[20] Id. at 12–14, 24–25.

[21] Wepplo v. Commissioner, T.C. Dkt. No. 36722-21, Order (July 2, 2026).

[22] Meta Platforms, Inc. & Subsidiaries v. Commissioner, T.C. Dkt. No. 16081-25, Order at 1–3 (June 25, 2026).

[23] See I.R.C. §§ 6211(a), 6601(e)(1).

[24] I.R.C. § 6511(a). Section 6512(a) generally bars a later refund claim or suit for tax placed before the Tax Court, so a post-decision payment does not reopen the deficiency determined in that proceeding. Underpayment interest is not part of the statutory deficiency, however, and section 7481(c) provides a post-decision procedure for redetermining interest after full payment. See I.R.C. §§ 6601(e)(1), 7481(c); Commissioner v. McCoy, 484 U.S. 3, 7 (1987).

[25] Former I.R.C. § 6230(c)(1)(A), (2)(A); General Mills, Inc. v. United States, 957 F.3d 1275, 1284–90 (Fed. Cir. 2020).

[26] I.R.C. §§ 6223(b), 6225(a), 6226(b)–(c); Treas. Reg. § 301.6226-3(a), (c)–(d).

Picture Credit: “April 15th – Tax Day – Circled on Calendar” by efile989 is licensed under CC BY-SA 2.0.

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