Affected Taxpayers Should Consider Filing Protective Refund Claim for Interest and Penalties Accrued During Covid-19 Disaster Period

In Kwong v. United States, No. 23-267 (Fed. Cl. 11/25/25), the U.S. Court of Federal Claims ruled that certain tax deadlines were automatically postponed for the entire COVID-19 disaster period plus 60 days. As a result, the court found that under the prior version of IRC Sec. 7508A(d), the suspension of underpayment interest and failure-to-file or failure-to-pay penalties was mandatory from January 20, 2020, through July 10, 2023. The decision invalidated Treasury Regulation Sec. 301.7508A-1(g)(3)(ii) limiting this mandatory postponement to one year. The decision is not affected by a November 2021 amendment to the statute, which was not retroactive.

This ruling creates a potential refund opportunity for taxpayers who paid interest and penalties related to tax deadlines that fell within this period. Affected taxpayers may file refund claims for amounts paid under IRC Sec. 6511 within three years from the time the return was filed or two years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within two years from the time the tax was paid. Note that the government is expected to appeal the court’s decision. Timely filing the refund claim would serve to protect the taxpayer’s rights to a refund should the Kwong decision be upheld.

Tax attorneys in Stites & Harbison’s Business & Finance Practice Group regularly assist clients in tax planning and controversy. For questions, comments, or assistance with any tax related matters, please contact the author or any of the other Stites & Harbison tax attorneys.