COVID-19 disaster relief case has implications for timely refund claims

The Court of Federal Claims held in Kwong, 179 Fed. Cl. 382 (2025), that a taxpayer’s refund claim filing deadline was automatically extended by Sec. 7508A(d)(1) due to the COVID-19 disaster declaration.

A recent blog post by National Taxpayer Advocate Erin Collins highlighted Kwong and how the decision might extend the filing deadlines for taxpayers who may be entitled to refunds or abatements of penalties and interest that the IRS assessed during the COVID-19 federal disaster period — if the taxpayers act quickly.

The case was brought by Terry Kwong, whose refund claims for penalties he had paid were denied by the IRS as untimely under the two-year limit of Sec. 6532(a)(1). The court, however, held that an extension period began on Jan. 20, 2020, when the disaster was declared, and ended on July 10, 2023, 60 days after the disaster period ended, and after Kwong had filed suit on Feb. 23, 2023. Kwong’s claims, it therefore held, were filed timely.

“By the court’s logic, the IRS should not have assessed penalties for late filing or payment during that 3.5-year period, nor charged interest on those amounts,” Collins wrote in a post on Thursday. She noted that under Sec. 6511(a), taxpayers generally must file refund claims within the later of three years from when they filed a tax return from which the overpayment arose or two years from the date they paid the tax. That additional three years will expire July 10, 2026.

Taxpayers with ongoing examinations or appeals may thus still have until that date to claim a refund, she wrote. “They should assess the impact of the Kwong issue on any settlement discussions or on their litigation approach.” They may also wish to file Form 843, Claim for Refund and Request for Abatement, as a protective claim, she said.

Collins also said she expected the Department of Justice to appeal the Kwong decision to the Federal Circuit.

The opinion in Kwong

In Kwong, the Court of Federal Claims denied in part the government’s motion for summary judgment, holding that Kwong’s suit seeking a refund of tax penalties paid for tax years 2007, 2010, and 2011 was timely. It held that the two-year deadline in Sec. 6532(a) for filing the suit was automatically postponed by Sec. 7508A(d)(1) due to the declaration of the COVID-19 disaster and that Kwong filed the refund claim within 60 days after the disaster period ended. The court granted the government’s motion for summary judgment regarding the taxpayer’s challenges to penalties assessed for tax years 2015 and 2016 and the transfer of his 2016 tax year overpayment to his 2007 tax debts.

Facts: In 2005, Kwong, a California resident, purchased his business partners’ shares in a real estate company and refinanced the business’s property, incurring a loss. On the advice of his attorney and CPA, Kwong claimed the loss on his 2005 tax return and carried it forward to his 2007, 2010, and 2011 tax years.

In 2012, the IRS disallowed the 2005 loss, resulting in additional tax liabilities for the 2007, 2010, and 2011 tax years, for which it also assessed delinquency penalties.

For his 2015 and 2016 tax years, Kwong was assessed penalties for his failure to pay estimated income tax. Before filing his 2016 return, Kwong made an estimated payment of $400,000, requesting that any overpayment be applied to his 2017 taxes. Instead, the IRS applied it to satisfy his outstanding 2007 tax debts.

In 2020, Kwong filed administrative refund claims with the IRS for the penalties he had paid for the 2007, 2010, 2011, 2015, and 2016 tax years. In September and October 2020, the IRS issued notices of disallowance for the 2007, 2010, and 2011 claims but had not acted on his 2015 and 2016 claims as of Feb. 23, 2023, when he filed suit in the Court of Federal Claims seeking a refund of the penalties assessed against him for all five tax years and challenging the transfer of his 2016 overpayment to his 2007 tax debts, requesting a refund of that payment.

The government moved for summary judgment in 2025, seeking dismissal of the refund claims for the 2007, 2010, and 2011 tax years as untimely filed. It also sought summary judgment regarding the penalties for 2015 and 2016, claiming they were properly assessed, and its application of the 2016 overpayment to the 2007 tax debts, as that claim for refund was untimely.

Issues: The court first considered whether Kwong’s refund suit for the tax penalties for the 2007, 2010, and 2011 tax years was time-barred under Sec. 6532(a)(1)’s two-year statute of limitation for filing refund suits, as the government asserted, or whether it was timely, as Kwong argued, under the COVID-19 disaster declaration period of extension for filing claims under the version of Sec. 7508A(d)(1) in effect at the time.

Sec. 6532(a)(1) provides, “No suit or proceeding under section 7422(a) for the recovery of any internal revenue tax, penalty, or other sum, shall be begun … after the expiration of 2 years from the date of mailing … to the taxpayer of a notice of the disallowance of the part of the claim to which the suit or proceeding relates.”

Sec. 7508A(a) generally gives the IRS the discretion to postpone certain tax-related deadlines for up to one year if it determines a taxpayer was affected by a defined, federally declared disaster.

The 2019 version of Sec. 7508A(d)(1) provided, “Mandatory 60-day extension. — (1) In general. — In the case of any qualified taxpayer, the period — (A) beginning on the earliest incident date specified in the declaration to which the disaster area … relates, and (B) ending on the date which is 60 days after the latest incident date so specified, shall be disregarded in the same manner as a period specified under subsection (a).”

Sec. 7508A(d)(2) provides that “any individual whose principal residence … is located in a disaster area” is a “qualified taxpayer.”

Sec. 7508A(d)(3) defines a disaster area, cross-referencing Secs. 165(i)(5)(A) and (B), which define a disaster area as one determined by the president warranting federal assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act).

On March 13, 2020, President Donald Trump declared a nationwide emergency under the Stafford Act due to the COVID-19 pandemic. On March 22, 2020, he declared California a major COVID-19 pandemic disaster area “beginning on January 20, 2020, and continuing.” In a notice published on Feb. 10, 2023, the COVID-19 incident period was declared to end on May 11, 2023.

In 2021, Regs. Sec. 301.7508A-1(g)(3)(ii) was issued, effective with respect to disasters declared on or after Dec. 21, 2019. It stated, “In no event will the mandatory 60-day postponement period be calculated to exceed one year.”

The second issue for the court to determine was whether the assessments of the penalties for the failure to pay estimated taxes for the 2015 and 2016 tax years were properly assessed.

Sec. 6654(a) provides, “Except as otherwise provided in this section, in the case of any underpayment of estimated tax by an individual, there shall be added to the tax … an amount” that includes the amount of underpayment plus an additional penalty.

A third issue was whether Kwong’s challenge to the transfer of his 2016 overpayment to his 2007 tax debts was timely.

Sec. 6511(a) provides, in pertinent part, that a “[c]laim for … refund of an overpayment of … tax … shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later.”

Sec. 6402(a) provides, “In the case of any overpayment, the Secretary … may credit the amount of such overpayment … against any liability in respect of an internal revenue tax on the part of the person who made the overpayment.”

Sec. 7422(d) provides, “The credit of an overpayment of any tax in satisfaction of any tax liability shall, for the purpose of any suit for refund of such tax liability so satisfied, be deemed to be a payment in respect of such tax liability at the time such credit is allowed.”

Holdings: The court held that Kwong timely filed his suit for refund for tax years 2007, 2010, and 2011, as the two-year statute of limitation in Sec. 6532(a)(1) was postponed by the mandatory 60-day extension in Sec. 7508A(d)(1). The extension period began on Jan. 20, 2020 (the earliest incident date of the disaster declaration), and ended on July 10, 2023 (60 days after the latest incident date of May 11, 2023). Since Kwong filed his refund suit on Feb. 23, 2023, it was timely.

The court rejected the government’s argument that, since the initial emergency declaration provided that it was “beginning on January 20, 2020, and continuing,” the extension did not continue into 2023, because the Jan. 20, 2020, date is both the earliest and latest incident date “specified.” It reasoned if that was intended, there would be no need for “and continuing” in the declaration.

The court held that Regs. Sec. 301.7508A-1(g)(3)(ii), limiting the mandatory 60-day extension by the discretionary one-year extension provided to the IRS, is a misreading of the statute, as the two provisions are independent.

In November 2021, Sec. 7508A(d)(1) was amended, changing the end of the period from “the date which is 60 days after the latest incident date specified” to “the date which is 60 days after the later of such earliest incident date … or the date such declaration was issued.” Thus, the automatic extension went from a period as long as the disaster was ongoing plus 60 days in the 2019 version to a maximum of 60 days in the 2021 version. The court noted the November 2021 amendment applied only to disasters declared after the act’s enactment date, which was after the COVID-19 disaster was declared on March 13, 2020. However, the court reasoned that the 2021 amendment, changing the text, implies that Congress changed the meaning of Sec. 7508A(d)(1). The court also noted that in July 2025, the mandatory extension deadline was extended to 120 days.

With respect to the second issue, since Kwong abandoned his claim for a refund for the 2015 tax year during trial and the court held that the penalty for the 2016 tax year was properly assessed and was not subject to a reasonable-cause exception, it granted the government summary judgment for both tax years.

On the third issue, the court ruled that Kwong’s challenge to the transfer of his 2016 overpayment to his 2007 tax debts was untimely. It reasoned that the IRS properly applied the 2016 overpayment as a credit to the 2007 tax debts in accordance with Sec. 6402(a). Thus, pursuant to Sec. 7422(d), the refund claim was for the 2007 tax year. Since the crediting of the overpayment was made in April 2017 or at the latest November 2017, that was the date the tax was paid. Applying Sec. 6511(a), the court held that Kwong had to seek a refund of the tax by April or November of 2019, but he did not do so until 2020. Therefore, he could not recover the 2016 overpayment, and the court granted the government summary judgment on that issue.

— Maria M. Pirrone, CPA, LL.M., is an associate professor, and Mark Aquilio, CPA, J.D., LL.M., is a professor, both at St. John’s University in Queens, N.Y. To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.