Interest Refund Opportunities for Conservation Easement Investors

There may be a meaningful opportunity for conservation easement investors to recover a portion of the interest paid to the IRS after a partnership adjustment. Recent court decisions interpreting the COVID-era disaster-relief rules under Section 7508A(d) have created a path to challenge interest that accrued during the approximately 42-month period from January 20, 2020, through July 10, 2023.[1] In addition, Section 6404(g) may provide relief in certain cases where the IRS delayed notifying a taxpayer of a liability.

COVID Disaster Relief and Interest Calculations

The interest claim is based on the version of Section 7508A(d) that governed the COVID disaster. That provision states that the disaster period “shall be disregarded in the same manner as a period specified under subsection (a).” That subsection, in turn, allows a designated disaster period to be disregarded when calculating interest. In practical terms, those 1,268 days should be excluded from the period over which the IRS charges underpayment interest. Interest that otherwise accrued from January 20, 2020, through July 10, 2023, may be subject to refund or abatement.

Two recent decisions provide the foundation for this position. In Abdo,[2] the Tax Court held that this rule applies automatically, without any action required by the taxpayer. Building on that reasoning, the Court of Federal Claims in Kwong [3] determined that the COVID disaster period extended from January 20, 2020, through July 10, 2023.

In conservation easement cases, that timing is significant. These matters often take years to resolve, while interest generally runs from the original return due date through payment. For example, consider an investor in a partnership that donated an easement in 2016 and has made no deposit: interest has been accruing since April 2017 and will run through the date of payment. IRS interest rates adjust quarterly,[4] and interest compounds daily. Over several years, that compounding can produce substantial balances, in some cases approaching 50 percent of the underlying tax liability. Where interest accrued during the COVID period, there may be an opportunity to remove that portion from the calculation.

Filing Mechanics, Deadlines, and Procedural Considerations

Interest refund and abatement claims are generally made with Form 843 (Claim for Refund and Request for Abatement), filed separately for each tax year. The procedural path for a refund claim depends on whether the partnership is governed by TEFRA (pre-2018 tax years) or the BBA centralized audit regime (post-2017 tax years).

In TEFRA cases, the IRS issues each partner a Notice of Computational Adjustment (NCA) after the partnership-level proceeding concludes. The NCA sets forth the partner’s resulting tax, penalties, and interest. Although the IRS may issue the NCA sooner, it is often not mailed until nearly a year after the partnership case is resolved. Former Section 6230(c)(2)(A) provides a special six-month period for a partner to challenge an erroneous computational adjustment. Partners should, therefore, review the NCA promptly and generally file any refund claim within six months after the date the IRS mails it.

In BBA cases, the default rule is that the partnership pays any imputed underpayment at the entity level in the adjustment year. If the partnership elects to push out the adjustments under Section 6226, each investor must instead report and pay the resulting additional tax and interest on the tax return for the year in which the adjustment is passed through—typically the partner’s next return after the partnership case ends. The investor then has two options. The first is to report a reduced interest amount on that return, attach a disclosure explaining the Section 7508A position, and contemporaneously file a protective Form 843. However, if the IRS disagrees with the reduction, it will seek the unpaid balance, with additional interest. The second option is to report and pay the full amount of interest, attach the same disclosure, and file a refund claim, generally within two years after payment. Under either option, the best practice is to make the disclosure and file the claim as early as possible.

One important nuance is the treatment of deposits. A remittance properly treated as a deposit under Section 6603 generally is not a payment and ordinarily does not begin the refund-claim period until it is applied or converted to a payment. That distinction can be significant in easement cases where deposits were made during the partnership’s dispute with the IRS. Taxpayers should confirm how each remittance was designated and posted on the IRS account transcript.

If the IRS disallows a refund claim—or does not act on it within six months—the taxpayer may be able to pursue a refund suit in federal district court or the Court of Federal Claims. Separate payment, jurisdictional, and suit-filing requirements apply, so the litigation calendar should be evaluated independently from the administrative claim deadline.

The IRS is not expected to issue refunds automatically, and the scope of the potential relief remains unsettled. The IRS has accepted only the 60-day result in Abdo,[5] while the government has appealed Kwong.[6] Other pending cases, including Western Digital [7] and Meta,[8] are addressing how Section 7508A applies to interest calculations. For that reason, many taxpayers are filing protective refund claims to preserve the issue while the law develops.

Additional Considerations Under Section 6404(g)

Section 6404(g) may provide an additional basis for interest suspension for individual taxpayers when the IRS does not give timely and sufficiently specific notice of a liability. In general, the suspension begins 36 months after the later of the return’s due date or filing date and continues until the required notice is provided.

This provision is subject to important exceptions, including exceptions involving gross misstatements and certain listed or reportable transactions. Those exceptions may be particularly important in conservation easement matters. Section 6404(g) therefore should be evaluated separately for each investor and each tax year.

Next Steps

These developments may present an opportunity for taxpayers, including partners involved in conservation easement transactions, to evaluate potential interest refund claims. Taxpayers and advisors should evaluate potential interest savings and monitor applicable deadlines to preserve any available claims.

Footnotes

[1] Unless otherwise noted, all Section references are to the Internal Revenue Code, Title 26 of the United States Code, as in effect at all relevant times.

[2] Abdo v. Commissioner, 162 T.C. 148 (2024) (holding that Section 7508A(d) created an automatic and mandatory 60-day postponement).

[3] Kwong v. United States, 179 Fed. Cl. 382 (2025) (treating the COVID disaster period as extending from January 20, 2020, through July 10, 2023, for purposes of a refund limitations issue).

[4] The non-corporate underpayment rate is adjusted quarterly and equals the federal short-term rate plus 3%. For the first three quarters of 2023, the interest rate was 7%. In BBA cases, the same rate generally applies; however, if the partnership makes a “push-out” election, the rate increases by 2 percentage points.

[5] Action on Decision 2026-01, 2026-23 I.R.B. 1556 (June 1, 2026) (acquiescing in the result in Abdo only and declining to accept any postponement beyond 60 days).

[6] Kwong v. United States, 179 Fed. Cl. 382 (2025), appeal docketed, No. 26-1843 (Fed. Cir. 2026) (notice of appeal filed May 15, 2026).

[7] Western Digital Corporation v. United States, Dkt. 1:26-cv-00215-DAT (Fed. Cl.).

[8] Facebook v. Commissioner, Dkt. 21959-16 (U.S. Tax Court).

Picture Credit: “Tax Court by Matthew Bisanz” by Matthew Bisanz is licensed under CC BY-SA 3.0.

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