A November 2025 court decision in the case of Kwong v. United States may provide a basis for certain taxpayers to seek refunds on IRS penalties and interest charged during the COVID-19 disaster period. This ruling challenges the IRS’s authority to impose many failure-to-file and failure-to-pay penalties, including interest, between January 20, 2020, and July 10, 2023.
The IRS has not yet adopted the ruling, and many legal observers expect the decision could be appealed. The urgency of this issue was underscored in a recent alert from the National Taxpayer Advocate (NTA), warning that many affected taxpayers may be unaware of the significance of Kwong and need to file a refund or abatement claim by July 10, 2026.
Even if the decision is appealed or modified, submitting a claim before July 10, 2026, preserves the option to request a refund, regardless of the case’s outcome.
Understanding Kwong v. United States and Its Impact on Taxpayers
The Kwong case raises broader questions about what federally declared disasters mean for tax deadlines and who has the authority to set the standards for relief.
The case originated when taxpayer Terry Kwong filed refund claims for penalties assessed during the pandemic period. The IRS denied those claims as untimely, but the U.S. Court of Federal Claims ruled in Kwong’s favor, applying the plain-text language of Section 7508A(d) of the Internal Revenue Code.
Under Section 7508A(d), certain federal filing and payment deadlines must be extended for the full duration of a federally declared disaster, plus an additional 60 days. For COVID-19, this period ran from January 20, 2020, to May 11, 2023, resulting in a deadline extension to July 10, 2023. The IRS had taken a narrower, notice-based approach, which moved the April 15, 2020 filing deadline to July 15, 2020.
Because the relief is considered to extend through July 10, 2023, the three-year statute of limitations for many claims begins from that date, making July 10, 2026, a crucial deadline.
Which Taxpayers Does Kwong Apply To?
Taxpayers (both businesses and individuals) should evaluate exposure if they:
- Paid penalties on 2019, 2020, 2021, and 2022 tax returns
- Filed late or had estimated tax penalties assessed
- Operate across multiple entities or pass-through structures
Those undergoing open IRS examinations or appeals should also reassess their position, as extended statutes may influence timing and settlement considerations.
As noted in a recent Forbes article, Kwong may also be particularly relevant for U.S. taxpayers living abroad during this period who incurred penalties. Taxpayers should also review state penalty and interest assessments separately. Many states issued their own COVID-era relief programs, and those rules are not controlled by the federal Kwong decision.
How to File a Protective Claim Using Form 843
Affected taxpayers must file claims using Form 843, Claim for Refund and Request for Abatement. Taxpayers may also consider filing a protective claim, which preserves the right to a refund while the legal outcome remains uncertain.
The NTA recommends that taxpayers identify relevant tax years and clearly label filings as a protective claim (for example, “Protective Refund Claim Pursuant to Kwong v. United States”). A protective claim does not need to include an exact dollar amount but should describe the basis of the claim and the applicable tax years with sufficient detail.
Practical steps for impacted taxpayers:
- Start with IRS account transcripts: Pull transcripts for tax years 2019 through 2022. These documents list penalty and interest assessments by date and amount and are available through your IRS online account or by mail.
- File by paper: The IRS does not accept Form 843 electronically. Paper processing takes time, making early preparation essential given the July 10 deadline.
- Consider sending by certified mail: The IRS does not confirm receipt of paper claims. Certified mail provides proof of timely submission.
- File one form per tax period, per entity: Per Form 843 instructions, claims cannot be combined across years or entities. Partnerships and pass-through structures should plan accordingly.
The Grassi Perspective: Preserve Optionality, Regardless of Legal Outcome
Tax cases of this nature take months or years to resolve through appellate review. Filing a protective claim preserves your options while the case unfolds. Grassi’s Tax advisors recommend assessing exposure and filing before July 10, 2026, while excluding any potential refund from cash flow projections or tax planning until the outcome is clearer.
How Grassi Can Help
Grassi’s Tax advisors are actively monitoring developments in Kwong v. United States and can help businesses and individuals assess COVID-era penalty exposure, prepare Form 843 filings, and evaluate how the ruling may affect ongoing examinations, appeals, and broader tax strategy.
To discuss your situation before July 10, contact a Grassi Tax advisor.
Frequently Asked Questions
Q: What is a protective claim?
A: A protective claim is a formal IRS filing that preserves eligibility for a refund while the legal question underlying the claim remains unresolved. It does not produce a refund automatically; it keeps the filing window open.
Q: Does Kwong v. United States apply to U.S. taxpayers living abroad?
A: It may. Expats who received IRS penalties related to COVID-era filing disruptions should evaluate their situation carefully. Forbes has reported that expats were among those most affected by pandemic-era penalty assessments.
Q: Does the IRS have to honor the Kwong decision?
A: Not yet. The decision may be appealed, and this is why filing a protective claim before the July 10 deadline, rather than waiting for certainty, is the recommended course.
Q: Do businesses with multiple entities need to file separately?
A: Generally, yes. Claims are filed per entity and per tax period. Partnerships, S corporations and multi-entity structures should evaluate each filing separately.
