The Kwong Appeal: Could You Still Qualify for a Pandemic-Era Tax Refund?

The IRS is asking the U.S. Court of Appeals for the Federal Circuit to reverse one of the most significant taxpayer-friendly decisions to emerge from the COVID-19 era. Until that happens, taxpayers and their advisors face an important question:

Should you wait for the appeal to be decided—or take steps now to preserve your rights?

For many taxpayers, waiting could be the riskier option.

The Court of Federal Claims’ decision in Kwong v. United States interpreted the federal disaster relief provisions in a way that could significantly extend certain tax filing and refund deadlines. If that interpretation ultimately stands, taxpayers who believed they had permanently lost the ability to claim refunds may have another opportunity.

The law, however, remains unsettled. The IRS has appealed the decision, and the Federal Circuit’s ruling could determine whether taxpayers are entitled to the broader relief recognized by the trial court.

That uncertainty is precisely why taxpayers who may be affected should begin evaluating their options now rather than after the appeal is decided.

What Did the Court Decide?

The dispute centers on Internal Revenue Code Section 7508A(d), which governs how federally declared disasters affect tax deadlines.

During the COVID-19 national emergency, the IRS postponed numerous filing and payment deadlines. The agency generally interpreted those postponements as lasting no more than one year.

The Court of Federal Claims reached a different conclusion.

It held that the statute required the IRS to disregard the entire COVID-19 disaster period—from January 20, 2020, through July 10, 2023—plus an additional 60 days when determining whether certain tax-related actions were timely.

The court also rejected IRS regulations that attempted to limit that relief.

If the Federal Circuit agrees with that interpretation, the decision could affect far more than the taxpayer involved in the case.

Why This Matters

Most taxpayers think about tax deadlines only in terms of filing returns.

In reality, the Internal Revenue Code contains numerous deadlines that determine whether a taxpayer can:

• Request a refund;
• Seek abatement of penalties or interest;
• File an amended return;
• Challenge certain IRS actions; or
• Preserve procedural rights in tax disputes.

If those limitation periods were suspended during the COVID-19 disaster period, as the Court of Federal Claims concluded, taxpayers who previously believed those deadlines had expired may still have viable claims.

For businesses and individuals alike, that could mean real money.

Who Should Be Paying Attention?

The Kwong decision may affect a broad range of taxpayers, including:

• Individuals who paid IRS penalties or interest during the pandemic;
• Business owners whose companies incurred payroll or other federal tax penalties;
• Estates and trusts with unresolved federal tax issues;
• Employers with employment tax disputes; and
• Taxpayers who never filed returns for tax years 2019 through 2022 but may still be entitled to refunds.

Every situation is different, but these are precisely the kinds of issues that warrant a closer review while the appeal remains pending.

Refund Opportunities May Extend Beyond Penalties

Much of the early discussion surrounding Kwong has focused on failure-to-file and failure-to-pay penalties.

That is understandable because those were central to the dispute.

However, the court’s reasoning may have broader implications.

Depending on a taxpayer’s facts, the decision could affect claims involving:

• Original tax returns;
• Amended returns;
• Refund claims;
• Employment taxes;
• Estate and gift taxes;
• Certain excise taxes; and
• Procedural deadlines connected with IRS examinations or collection matters.

Whether any of those arguments ultimately succeed remains to be seen. The Federal Circuit may affirm, narrow, or reverse the decision.

That is why preserving potential claims today may be more important than predicting tomorrow’s outcome.

An Often Overlooked Group: Non-Filers

Some of the taxpayers who could benefit most from the Kwong decision are individuals who never filed returns during the pandemic years.

Many assume there is no reason to file if they did not owe additional tax.

That assumption is often incorrect.

Federal income tax withheld from wages and estimated tax payments frequently produce refunds. Under normal rules, taxpayers generally have only a limited period to claim those refunds.

If the Court of Federal Claims’ interpretation ultimately prevails, some taxpayers who believed those refunds were permanently lost may still have time to file.

That could include taxpayers eligible for Recovery Rebate Credits or other refundable tax benefits tied to the 2020 through 2022 tax years.

While those claims are far from automatic, they may be worth evaluating before potential deadlines pass.

Why July 10, 2026, Matters

Although every taxpayer’s circumstances are different, many practitioners believe July 10, 2026, could become an important deadline for preserving claims potentially affected by the Kwong decision.

For some taxpayers, that may mean filing an original return.

For others, it could involve an amended return or a protective refund claim.

A protective claim does not guarantee a refund. Instead, it preserves a taxpayer’s ability to pursue a claim while the courts determine how the law ultimately should be interpreted.

Waiting until after the Federal Circuit issues its decision could leave some taxpayers without the opportunity to preserve their rights.

Proceed Carefully

The Kwong decision has generated considerable interest, and with that interest often comes misinformation.

Taxpayers should be cautious of anyone promising guaranteed refunds or encouraging aggressive filing positions without a careful analysis of the facts.

The IRS has not accepted the Court of Federal Claims’ interpretation and continues to challenge it on appeal. Even if the Federal Circuit ultimately affirms the decision, the IRS may carefully review claims filed under its reasoning.

Taxpayers should also remember that returns for tax years 2019 through 2022 generally must be filed on paper because those years are no longer eligible for electronic filing through the IRS’s standard systems.

Practical Next Steps

The Federal Circuit’s decision may ultimately determine the scope of relief available under the COVID-19 disaster provisions. Until then, taxpayers should focus on preserving options rather than making assumptions.

If you believe you may have:

• Paid IRS penalties or interest during the COVID-19 disaster period;
• Missed the deadline to claim a refund;
• Failed to file a return for tax years 2019 through 2022; or
• Questions about whether a protective refund claim is appropriate,

now is the time to evaluate those issues.

Every taxpayer’s facts are different, and the appropriate course of action depends on the type of tax involved, when payments were made, and the applicable deadlines.

The Kwong appeal is a reminder that procedural deadlines can be just as important as the underlying tax issue. Taking the time now to understand your options may preserve valuable rights while the law continues to develop.

When it matters, DeWitt.

Questions about how the Kwong appeal may affect your business or personal tax situation?

Van U. Donkersgoed represents businesses, individuals, trusts, and nonprofit organizations in tax controversy matters before the IRS and state taxing authorities. If you have questions about protective refund claims, IRS penalties, or preserving your rights while the Kwong appeal is pending, Van can help you evaluate your options and develop a practical path forward.