Recent judicial developments in the United States Court of Federal Claims and the Tax Court have unveiled a significant opportunity for taxpayers to recover interest and penalties paid during the COVID-19 pandemic. Specifically, the decisions in Kwong v. United States (2025) and Abdo v. Commissioner (2024) have clarified that the mandatory disaster extension period under Internal Revenue Code (IRC) § 7508A(d) was far more extensive than the Internal Revenue Service (IRS) previously acknowledged.
IRC § 7508A provides the framework for postponing tax-related deadlines during federally declared disasters. The statutory logic distinguishes between discretionary and mandatory relief:
In Abdo, the Tax Court ruled that § 7508A(d) is "self-executing" and mandatory, meaning the IRS cannot use its discretion to shorten the period defined by the disaster's actual duration. This invalidated portions of Treasury Regulation § 301.7508A-1(g), which attempted to limit these mandatory postponements to one year.
The COVID-19 disaster declaration was unprecedented in length. While the IRS previously issued notices (such as Notice 2020-23) suggesting relief was limited to only a few months in 2020, the Kwong court held that for the COVID-19 pandemic, the "latest incident date" did not occur until May 11, 2023. Consequently, the mandatory disregarded period for qualified taxpayers runs from January 20, 2020, through July 10, 2023 (60 days after the May 11 end date). During this nearly 39-month window, the accrual of underpayment interest and failure-to-file/pay penalties should have been suspended.
Taxpayers who paid interest on deficiencies or delinquency penalties during this period may be entitled to significant refunds. This applies to:
The interaction between § 7508A and the statute of limitations under IRC § 6511(a) creates a unique filing window. Normally, a refund claim must be filed within three years of the return filing or two years of the tax payment. Under the logic approved in Kwong, the disaster period is essentially "carved out" of the limitation period calculation. For limitation periods that would have commenced or were running during the incident period, the clock effectively stopped on January 20, 2020, and resumed after July 10, 2023.
Example Modeling: If a corporation paid an audit assessment including underpayment interest on February 15, 2024, the two-year-from-payment rule normally expires on February 15, 2026. However, if the underlying interest was calculated over the disaster period (Jan 2020 – July 2023), the taxpayer can file a refund claim for the portion of interest attributable to that disregarded window, provided the overall claim is filed within the open two-year window from the payment date.
Taxpayers should immediately review their interest and penalty history for the years 2019 through 2023. Given that the July 10, 2026, threshold is approaching for many returns, prompt action is required to secure these "King Kwong-sized" refund.
If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax practice, please email James Keehn, Tax Practice Lead, at jkeehn@hogantaylor.com.
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