Overview
Recent judicial decisions in Kwong v. United States1 (Court of Federal Claims 2025) and Abdo v. Commissioner2 (Tax Court 2024) raise the possibility of a potential time sensitive opportunity for certain taxpayers to recover interest and penalty amounts that accrued during the COVID 19 national disaster period. Taxpayers who paid underpayment interest or failure to file or failure to pay penalties within the last two years which are attributable to the COVID-19 national disaster period, i.e., January 20, 2020 through July 10, 2023, may wish to file a refund claim.
The decisions in Kwong and Abdo involve Internal Revenue Code (IRC) Section 7508A(d), as enacted in 2019 as part of the Taxpayer First Act, which provides for mandatory postponement of tax related deadlines for all taxpayers in federally declared disasters.
The Courts held that based on the President’s COVID 19 disaster declaration and IRC Section 7508A(d), mandatory relief should be provided for tax deadlines for the entire time period of the COVID-19 declared national disaster, i.e., from January 20, 2020 through July 10, 2023. This period is referred to as the full “incident period” plus 60 days.
As a result, taxpayers with underpayment interest, failure to file and failure to pay penalties or with ongoing examinations related to this COVID-19 disaster period with open limitation periods may be entitled to refunds of such interest and penalties.
Mandatory Disaster Relief Under IRC Section 7508A(d)
IRC Section 7508A(d) was enacted in 2019, and prior to its amendment in 2021, provides for an automatic suspension of certain tax deadlines during a federally declared disaster plus an additional 60 days.3 Treasury issued regulations in 2021 attempting to narrow the scope of the suspension. In Abdo, the Tax Court invalidated the relevant provisions of the regulations and held that Section 7508A(d) provides for an unambiguously self-executing postponement period, extending the time for filing a Tax Court petition. The Abdo decision was not appealed and is now final.
In Kwong, the Court of Federal Claims disregarded the 2021 regulations and held that the time for filing a refund suit had been automatically extended to the end of the incident period, plus 60 days. The parties in Kwong indicated on February 27, 2026 that they anticipate that a joint motion to enter a stipulated judgment in that case will be filed by March 13, 2026, and will enable the government to appeal to the Federal Circuit.
Both Abdo and Kwong concluded that the 2019 version of IRC Section 7508A(d) is mandatory, not discretionary, and requires the IRS to disregard the entire COVID 19 disaster period for purposes of determining certain deadlines and filing periods, and that the Section 7508A(d) extension applies to all “acts” listed in IRC Section 7508A(a), including:
- Filing deadlines,
- The amount of any interest, penalty, or addition to tax, and
- The amount of any credit or refund.
Length of the COVID 19 Disaster Period
In Kwong, the Court of Federal Claims confirmed that the applicable disaster period begins on January 20, 2020 (the earliest “incident” date) and ends on May 11, 2023 (the Presidentially declared end date), then a 60 day statutory extension applies, which results in a final end date of July 10, 2023. This results in a 39 month period that the Court held must be excluded when determining the timeliness of a refund suit.
Implications for Taxpayers
There are several important implications of the Courts’ decisions in Abdo and Kwong. First, although neither Abdo nor Kwong specifically addressed underpayment interest, the rationale of those cases may indicate that underpayment interest and failure to file and failure to pay penalties would not accrue during the entire COVID 19 incident period. This could be significant depending on a taxpayer’s individual circumstances.
Second, the statute of limitations for refund claims could still be open. Depending on payment and filing dates, the three year and two year limitation periods under IRC Section 6511 may not have begun, or may have been paused, until July 10, 2023. An interest suspension could also affect other interest computation matters such as credit elect interest disputes, offsets under IRC Section 6402, interest netting under IRC Section 6621(d), and interest related to an assessment stemming from an audit, appeals, or litigation adjustment, such as a liability computed on a Notice of Computational Adjustment.
As held in Kwong, refund suits filed more than two years after a notice of disallowance may still be timely if the IRC Section 7508A(d) tolling period overlapped with the filing window.
Finally, taxpayers who have not already paid the interest that accrued during the disregarded period could also take the position that the interest was not legally assessed, and, therefore, they do not have to pay it. However, this might prevent the taxpayer from obtaining review by a Court of the substantive legitimacy of the interest computation. It is unclear whether the IRS would follow normal collection procedures, including collection due process hearings and Tax Court review for interest-only liabilities that do not involve a tax deficiency.
Potential Next Steps
Given the decisions in Abdo and Kwong, taxpayers may wish to (1) review all open and recently closed exam years to identify any significant underpayment interest or failure to file or failure to pay penalties for periods between January 20, 2020 and July 10, 2023; (2) identify all extensions of the statute of limitations, or payments made within the last two years, (3) evaluate refund potential for underpayment interest imposed under IRC Section 6601, failure to file, failure to pay or estimated tax penalties imposed under IRC Sections 6651 and 6654 and the effect of an interest suspension on interest netting, restricted interest, application of credit elect overpayments or overpayment offsets, and (4) file [protective] claims for refund where appropriate to preserve rights while IRS guidance and appeals of Court decisions develop. Because the government has indicated an intention to appeal the Kwong decision, taxpayers should not expect that the IRS would allow any requests for abatement, refund claims, and the like.
Conclusion
The Kwong and Abdo decisions may create a rare opportunity for taxpayers to secure refunds of interest and penalties accruing during the COVID 19 disaster period. With the potential for mandatory tolling through July 10, 2023, refund claims could remain open. If you have questions about this, please contact Sandy Bradford, Belinda Be, or the lawyer with whom you generally work.
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1 Kwong v. United States, 179 Fed. Cl. 382 (2025).
2 Abdo v. Commissioner, 162 T.C. 148 (2024).
3 Current section 7508A(d) limits the automatic extension period to 60 days, i.e., the end date for the automatic extension is 60 days after the later of the earliest incident date or the date the declaration was issued.
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