Due a refund? A recent court case has extended the time to claim one, but time could be running out.
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A federal court case that was decided late last year is prompting taxpayers to consider filing for a refund in 2026. The ruling in Kwong v. United States that some tax deadlines should have been on hold for the entire time that the pandemic was considered a federal disaster—plus 60 days—means that the time to file for refund or an abatement may still be open.
The potential extension has opened the door for taxpayers, including individuals and businesses, to recover IRS penalties and interest assessed during the COVID-19 disaster period. For most taxpayers, the deadline to file refund or abatement claims is now July 10, 2026.
Think you might be owed some money? Here’s what you need to know.
Facts of Kwong v. United States
The case was brought by Terry Kwong, an individual taxpayer in California. His case started well before the pandemic. Kwong received advice regarding a loss carry-forward related to a transaction that originated in 2005. Years later, the IRS reduced the amount of the loss, and the subsequent adjustment resulted in the loss being used up in the 2005 and 2006 tax years.
Since Kwong had anticipated that the loss would be sufficient to cover future years’ taxes, he did not timely resolve his 2007, 2010, and 2011 tax liabilities (he also did not timely file his 2010 and 2011 federal income tax returns). As a result, he was assessed failure-to-file and failure-to-pay penalties for the 2007, 2010, and 2011 tax years.
Kwong hired a new accountant and filed and paid his 2015 taxes on time. The IRS, however, transferred his entire payment to another tax year (to satisfy the balance due) and assessed significant delinquency penalties.
For the 2016 tax year, the same thing happened. Kwong’s 2016 individual federal income tax return was timely filed, and he paid the tax due. The IRS again transferred the entire payment to another tax year and assessed significant delinquency penalties.
When he discovered what happened, he met with the IRS and arranged to pay his 2007, 2010, 2011, 2015, and 2016 tax liabilities in full. Then, in 2020, Kwong filed for a refund of penalties and interest for those years on the grounds that he acted with reasonable cause and in good faith. The IRS disallowed his claims in September and October 2020.
Kwong filed a refund suit in 2023. The case was filed in the United States Court of Federal Claims (COFC), a specialized federal court authorized under the Constitution. Unlike federal district courts, which handle a wide range of civil and criminal matters, the COFC focuses exclusively on monetary claims against the government. And, notably, the court has nationwide jurisdiction over federal tax refund suits.
Judge Edward J. Meyers, who was appointed to the court in 2020 by President Donald Trump, was assigned to the matter.
Arguments and Procedure
Under section 6532 of the tax code, a taxpayer has two years from the date the IRS sends a Notice of Disallowance to file a lawsuit in federal court. Kwong did not file the lawsuit until February 2023, which was more than two years after the IRS disallowed his claims. As a result, the government filed a motion for summary judgment, arguing that the claims were untimely because Kwong waited too long.
Summary judgment is a judgment entered by a court for one party and against another. In a civil case, it’s triggered by a pre-trial motion asking the court to rule on the merits of the case. Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment is proper when there is no dispute about any material fact, and the party requesting the motion is entitled to judgment as a matter of law.
Meyers disagreed with the government. Instead, he ruled in favor of the taxpayer, finding that the suit was timely.
Tax Code Section 7508A
Key to the government’s case was section 7508A, which provides relief to taxpayers affected by federally declared disasters by postponing certain federal tax deadlines, including the filing deadlines for tax returns and refund claims.
The government pointed to its own COVID-19 relief notices, including Notice 2020-23, which extended deadlines by only a few months in 2020. And the government further argued that Section 7508A was discretionary, meaning the Secretary of the Treasury was permitted to make those decisions.
Meyers found that to be an incorrect reading of the statute. Instead, he ruled that Congress used the word “shall,” which is mandatory, not discretionary. That means, he ruled, that those tax deadlines—including those tied to refunds—apply for the entirety of a federally-declared disaster plus 60 days.
In the U.S., the pandemic was officially a federally declared disaster from January 20, 2020, through May 11, 2023, for federal tax purposes. That would mean the law automatically tolled the statute of limitations for that period plus 60 days, extending the window to July 10, 2023.
For Kwong, it meant that the time to file his lawsuit under section 6532 was paused, and the clock didn’t start ticking again until July 2023. In other words, his filing was not late.
Result for Kwong
It wasn’t a complete win for Kwong. The finding wasn’t a ruling on the merits of his case—just that he was allowed to file it and proceed.
When the case was resolved in 2026, he eventually walked away with $84,000 plus interest for his 2007 tax year. He didn’t recover anything for 2010, 2011, 2015, or 2016. And he wasn’t awarded costs or attorney’s fees. (My guess is that he likely spent as much as he recovered on attorney’s fees alone.)
What About Abdo?
Even though Kwong is getting all the attention, it wasn’t the first case to consider how section 7508A applied during the pandemic. In Abdo v. Commissioner 162 T.C. No. 7 (Apr. 2, 2024), the U.S. Tax Court reached a similar decision. In its ruling for the taxpayers, the Court found that, under section 7508A, an automatic postponement period applied, making the taxpayers’ petition timely.
Notably, both Abdo and Kwong relied on Loper Bright to decline to defer to IRS guidance and instead looked solely to the statute. Loper Bright Enterprises v. Raimondo (2024) is a Supreme Court decision that overturned the long-held Chevron deference doctrine, which required courts to defer to a federal agency’s reasonable interpretation of ambiguous laws. Before Loper Bright, a court likely would have deferred to the IRS’s argument that managing the pandemic required administrative flexibility. After Loper Bright, the IRS’s administrative needs no longer outweigh the literal text of the tax code.
Congress Steps In
Realizing that there was some ambiguity, Congress updated section 7508A on November 15, 2021, changing the formula so that extensions for new disasters would be much shorter (essentially capping most postponement periods at 60 days). However, in Kwong, Meyers explicitly ruled that this 2021 narrowing of the law does not apply retroactively to the pandemic since it happened before the law was changed.
What Does It Mean for Taxpayers?
While Kwong didn’t walk away a complete winner, tax firms and taxpayers see an opportunity. Since Meyers ruled that section 7508A automatically postponed federal tax filing and payment deadlines for the entire federally-declared disaster period—plus 60 days—this extends the window for many taxpayers to file for a refund.
The argument is that any failure-to-file or failure-to-pay penalties or underpayment interest on taxes accrued between January 20, 2020, and July 10, 2023, never should have accrued because the legal due date was pushed out. If you were charged any of those penalties or interest during that time, means you may be eligible for a refund or abatement.
For most taxpayers, that means the deadline to file refund or abatement claims is July 10, 2026.
What To Consider
The Kwong decision is not exactly final. The government can (and likely will) appeal it to the Federal Circuit. If a higher court reverses it, any claim for refund based on the ruling would be denied.
But if you don’t file for refund by the deadline and the ruling stands, you are barred from pursuing a claim, meaning even if you’re right, you’re too late to get your money back.
That’s why many firms are urging taxpayers to file a protective claim for refund by using Form 843. A protective claim is used to preserve a taxpayer’s right to a future refund when that right is contingent on events that may not be resolved until after the standard statute of limitations has expired. In the context of Kwong, protective claims make sense because the IRS is expected to appeal. Filing a protective claim freezes the statute of limitations, which means you remain potentially eligible for a refund if the Kwong decision is upheld.
But remember, the opportunity to bring the suit doesn’t mean that you’ll win everything that you’re asking for. Kwong is a good example of how that can work out.
Your best bet? Check your tax transcripts for penalty codes 160 (failure-to-file) and 166 (failure-to-pay) that might show up during the claims window. If those amounts are large, talk to a reputable tax firm that can look at the merits of your claims and help you decide if you have a case.