Taxpayers Facing Penalties and Interest that Accrued between January 2020 and July 2023 May Have a Significant Refund Opportunity

In November 2025, the United States Court of Federal Claims (CFC) decided Kwong v. United States, No. 23-267, 179 Fed. Cl. 382 (Fed. Cl. 2025), an important case which addressed taxpayer concerns about the duration of mandatory extension periods under 26 U.S.C. § 7508A for taxpayers pursuing refunds for underpayment interest and failure-to-file penalties accrued during the COVID-19 federally-declared emergency.[1]

Kwong impacts thousands of taxpayers, providing important guidance and potentially an avenue for relief for those who were impacted by IRS penalties and interest accrued between January 20, 2020, and July 11, 2023. For taxpayers who believed their refund or penalty abatement claims were brought too late, this case may reopen doors that the IRS has insisted were previously closed, while also potentially offering an opportunity for those with penalties and accrued interest from prior to the COVID-19 pandemic to receive an abatement during this period.

Abdo v. Commissioner

Recent case law interpreting the intentions of § 7508A in the context of the federal COVID-19 disaster declaration did not start with Kwong. In Abdo v. Commissioner, 162 T.C. 148 (2024), the Tax Court held Section 7508A(d) automatically extends the deadline to file a petition with the court to challenge a tax deficiency without the taxpayer needing to request the extension or take any action to trigger it. The court in Abdo, however, did not address a postponement extending more than 60 days after January 20, 2020, the date of the Ohio Disaster Declaration. Since the issue before it was resolved with the automatic 60-day extension, the Tax Court did not express a view on the outer limits of the extension period. It did note, however, that the statute redefined the extension period for disasters declared after November 15, 2021, to end “on the date which is 60 days after the later of . . . [the] earliest incident date . . . or the date such declaration was issued.”[2] That left the limits of the extension period unaddressed until the Court of Federal Claims decided the issue in Kwong.

Kwong v. United States

The facts of Kwong were straightforward. Terry Kwong, a real estate business owner, sought a refund of penalties assessed for multiple tax years.[3] The dispute arose after Kwong became the sole owner of his business in 2005, refinanced the property, and claimed a $2.3 million loss related to that transaction, carrying it forward into later tax years, including 2007, 2010, and 2011.[4]

In 2012, the IRS disallowed the loss and assessed additional tax liabilities and delinquency penalties. The IRS formally denied Kwong’s penalty abatement requests for 2007, 2010, and 2011 in September and October 2020.[5]

In February 2023, Kwong filed a complaint with the CFC seeking refunds for the assessed penalties and interest, more than two years after the IRS denial. The parties’ main disagreement concerned interpretation of Section 7508A, which provides for extensions of normal statutory filing deadlines in cases where a taxpayer is affected by a “federally declared disaster”. 26 U.S.C. § 7508A(a), (d). The government claimed that Section 7508A(a) controlled, and that statute of limitations expired 60 days from a “specified end date” indicated in the disaster declaration, which would preclude Kwong’s claim on the grounds that no end date was specified in the 2019 version of Section 7508A. Meanwhile, Kwong claimed that Section 7508A(d) required the automatic extension to start upon the completion of the federal COVID emergency declaration.

The CFC ruled in favor of Kwong, holding that the plain reading of § 7508A(d) provided automatic relief for the entire duration of a federally declared disaster, plus an additional 60 days.[6] According to the court, the federal COVID-19 emergency did not end until May 11, 2023, making any claims due during this emergency eligible for filing until July 11, 2023, 60 days after the end of the emergency.[7]

Notably, the court rejected the government’s attempt to cite IRS guidance (26 C.F.R. § 301-7508A-1(g)(3)(ii)) on the interpretation of filing deadlines under Section 7508A which supported the government’s argument on the timing of the 60 days. Citing Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 412 (2024), the court made clear that courts must exercise independent judgment when interpreting statutes and cannot defer to agency interpretations of perceived ambiguities. Additionally, the court held that there were no perceived ambiguities in the reading of the 2019 version of Section 7508A requiring either the court’s interpretation or the IRS’s guidance.

Recent Litigation

On the heels of the CFC’s decision in Kwong, Western Digital filed a refund suit in the Court of Federal Claims seeking a refund of over $20 million of underpayment interest that accrued during the Section 7508A(d) disaster period.[8] The complaint was filed on February 6, 2026, and has not yet been answered. Similarly, Meta Platforms raised the interest calculation issue in its computations for entry of decision in its case in the United States Tax Court.[9]

Common Scenarios Invoking Section 7508A(d)

While time is of the essence as statutes of limitation tick away, there are three common scenarios invoking Section 7508A relief.

• Underpayment interest. If a taxpayer incurred or paid underpayment interest under section 6601, they may be eligible for an abatement of that interest during the period between January 20, 2020, and July 10, 2023. Taxpayers who paid underpayment interest related to the extended COVID-19 disaster period within the past two years may still be eligible to claim refunds under Section 6511(a). These issues are currently being litigated by Western Digital and Meta Platforms in the Court of Federal Claims and the U.S. Tax Court, respectively.
• Failure-to-pay or failure-to-file penalties. If a taxpayer incurred failure to pay or failure to file penalties under Section 6651 during the suspension period and those penalties have not yet been abated, section 7508A may apply to reduce the penalties and any associated interest.
• Disputed filing deadlines. If a taxpayer is still disputing whether an IRS filing deadline that fell between January 20, 2020, and July 10, 2023, was satisfied, a filing made after that date may be treated as timely. Relevant deadlines include the filing of a Tax Court petition (Abdo) and the filing of a refund claim that would otherwise have been untimely during the suspension period (Kwong).

Conclusion

From a practical perspective, the Kwong decision suggests that taxpayers should reevaluate penalties and interest previously paid and consider filing refund claims targeting those amounts, even when the underlying tax liability itself is not in dispute. Taxpayers who may be affected should consider their potential options and remain mindful of the timing requirements and other procedural considerations associated with pursuing the abatement or refund of interest or penalties.

Footnotes:

[1] The author would like to thank John Kirby for his substantial assistance in preparing this article.

[2] Abdo v. Commissioner, 162 T.C. 148 (2024) n.13 (citing Infrastructure Investment and Jobs Act, Pub. L. No. 117-58, § 80501, 135 Stat. 429, 1335 (2021).

[3] Kwong, 179 Fed. Cl. at 384

[4] Id.

[5] Id. at 387.

[6] Id. at 388.

[7] Id. at 390.

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

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

Picture Credit: “Court of Federal Claims Markey Washington DC 2025-05-03 15-02-48” by G. Edward Johnson is licensed under CC BY 4.0.

Asbury Gardner Tax Counsel is an Atlanta law firm representing clients in complex civil and criminal tax litigation and federal, international, and state tax litigation and tax controversies. Asbury Gardner represents corporations, partnerships, business owners and high net worth individuals. The tax attorneys at Asbury Gardner are routinely recognized by Best Lawyers in America, Super Lawyers, Chambers USA, and the Legal 500 as tax experts.