TL;DR: In Kwong v. United States, a federal court ruled that a pandemic-era tax law automatically suspended IRS deadlines from January 20, 2020, through July 10, 2023, meaning penalties and interest charged during that window may have been improper. The government is now appealing, arguing the suspension was limited to just 60 days. If the lower court’s ruling survives the appeal, millions of taxpayers could be entitled to refunds or tax debt relief on COVID-era penalties and interest.
By Fresh Start Initiative
If you received an IRS penalty notice during the COVID-19 pandemic and struggled to pay, or if you still carry that tax debt today, a federal court case called Kwong v. United States may be directly relevant to you. The ruling shook the tax world. Now the federal government is pushing back hard, and the outcome could affect tens of millions of Americans.
This situation is genuinely confusing, and the stakes are high. You deserve a clear explanation of what happened, what the government is arguing, what it means for you right now, and what steps you can take to protect yourself while this legal battle plays out.
We are not your attorneys, and this article is not legal advice. But we do help people resolve tax debt every day, and this is one of the most consequential tax developments in recent memory. Here is what you need to know.
The Kwong Ruling: A Quick Recap
The case began simply enough. Terry Kwong filed a lawsuit seeking refunds for tax years 2007, 2010, and 2011. The IRS said his refund lawsuit was filed too late. Kwong argued that a COVID-era disaster relief law had automatically extended his deadline.
The U.S. Court of Federal Claims agreed with Kwong. The court relied on IRC Section 7508A(d), a provision added to the tax code in 2019, which creates a “mandatory 60-day extension” of tax deadlines when a federal disaster is declared. The court concluded that this mandatory extension ran for the entire COVID-19 federal disaster period and then an additional 60 days, creating a postponement window from January 20, 2020, through July 10, 2023.
That is a window of roughly three and a half years. The practical implication is enormous: if deadlines were automatically extended during that entire period, then many penalties and interest charges the IRS assessed during that time may have been wrongly imposed.
What the Government Brief Actually Says
The government filed its opening brief with the U.S. Court of Appeals for the Federal Circuit, and its argument is direct. The government says the lower court misread the law. In the government’s view, IRC Section 7508A(d) was always intended to provide a fixed, automatic, and limited 60-day extension, not an open-ended suspension that stretches across years of disaster declarations.
The government also points to a series of IRS notices, including Notice 2022-36, as evidence that Congress expected the IRS to exercise discretionary authority to grant additional relief, rather than having relief automatically flow from the statute itself for years on end. The government’s position is that the section heading, “Mandatory 60-day extension,” reflects exactly what Congress intended: a limited, automatic grace period, not a multi-year freeze of every tax deadline nationwide.
The government also warned the appeals court that the lower court’s reading has enormous financial consequences. If the Kwong interpretation is upheld, it could expose Treasury to tens of billions of dollars in potential refund claims from taxpayers across the country.
Why This Case Is Bigger Than One Taxpayer
The Kwong case is not just about one man’s old tax returns. Its implications ripple out in several important directions.
First, the Kwong ruling builds on an earlier Tax Court case, Abdo v. Commissioner, which reached a similar conclusion about the same statute. Multiple courts examining the same question and arriving at taxpayer-friendly answers is a meaningful signal, even if it does not guarantee a final outcome.
Second, the types of penalties at issue in this case are very common. Failure-to-file penalties, failure-to-pay penalties, underpayment interest, and estimated tax penalties are among the most frequently assessed charges the IRS imposes. Millions of individuals, small businesses, trusts, and nonprofits received these penalties during the pandemic period.
Third, the government’s own tax watchdog has weighed in publicly. The National Taxpayer Advocate issued guidance urging affected taxpayers to take protective action before the statute of limitations runs, because relief will not happen automatically, even if taxpayers ultimately win on appeal.
If you carry tax debt that includes penalties or interest from the January 2020 to July 2023 window, your situation may be affected. That is reason enough to explore your tax debt relief options now rather than later.
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Check Your Eligibility →Key Comparison: Government’s Position vs. the Kwong Court’s Ruling
| Issue | Government’s Position (Appeal Brief) | Kwong Court’s Ruling |
|---|---|---|
| Length of automatic extension under IRC 7508A(d) | Fixed 60-day window only | Entire COVID disaster period plus 60 days (Jan. 20, 2020 to July 10, 2023) |
| Who controls additional relief beyond 60 days | IRS discretion via notices and guidance | Statute is self-executing; no IRS action required |
| Penalties and interest charged during pandemic | Lawfully assessed beyond the 60-day window | May have been improperly assessed during the full 3.5-year window |
| Potential financial impact | Exposure limited if appeal succeeds | Tens of billions in potential refund liability to Treasury |
| Current status | Actively appealing to U.S. Court of Appeals for the Federal Circuit | Lower court ruling stands pending appeal |
| Relief is automatic | No automatic relief expected from IRS | Taxpayers must file claims; relief is not automatic |
What Types of Penalties and Interest Are Potentially Affected
The Kwong ruling is broad in its potential reach. Taxpayers who paid certain types of charges tied to deadlines that fell within the COVID disaster window may have grounds to seek refunds or abatements. Here are the categories most commonly discussed by tax practitioners:
- Failure-to-file penalties: Charged when a return is submitted after its due date.
- Failure-to-pay penalties: Charged when taxes owed are not paid on time.
- Estimated tax penalties: Charged when quarterly estimated payments fall short of what is required.
- Underpayment interest: Interest that accrues on unpaid balances when returns or payments are late.
Importantly, the Kwong case itself did not directly rule that every penalty charged during the pandemic was improper. The court ruled on the timing of a refund lawsuit. However, the legal logic of that ruling carries strong implications for penalties tied to those same postponed deadlines. The government’s appeal disputes exactly this logic, which is why the outcome of the Federal Circuit case matters so much.
Also worth knowing: Kwong applies to federal tax law only. State tax penalties are governed by separate statutes and state tax agencies, and they are not automatically covered by this ruling.
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See if you qualify for tax debt relief
Take 60 seconds to find out which IRS programs you may qualify for. No obligation, no cost.
Check Your Eligibility →What You Can Do Right Now: A Step-by-Step Guide
The legal case is still being decided, but you do not have to wait to protect yourself. Here is how to approach this situation in a methodical way:
- Pull your IRS account transcripts. Log in at IRS.gov and download your account transcripts for any tax years where you may have been charged penalties or interest between January 2020 and July 2023. The National Taxpayer Advocate has published guidance on reading these transcripts to identify potentially affected charges.
- Identify what you actually paid. Make a list of any failure-to-file penalties, failure-to-pay penalties, estimated tax penalties, or underpayment interest that you actually paid during the COVID period. If the IRS assessed a penalty but you have not paid it, you would seek abatement rather than a refund.
- Consult a qualified tax professional. Because the law is still evolving, the facts of your specific situation matter enormously. A tax professional can assess whether filing a protective claim makes sense for you.
- Consider filing a protective claim using Form 843, Claim for Refund and Request for Abatement. The IRS now has a specific page dedicated to Kwong-related claims, including an online option for individual taxpayers. A protective claim preserves your right to a refund if the courts ultimately rule in taxpayers’ favor, without guaranteeing anything today.
- File a separate Form 843 for each tax period. The IRS requires a separate claim for each tax year and each type of tax involved. Do not combine multiple years on one form.
- Mark your filing clearly. If filing by paper, write “Kwong vs. United States” across the top of the form so it is routed correctly within the IRS system.
- Keep proof of timely filing. Use a mailing method that provides tracking and delivery confirmation, and keep complete copies of everything you submit.
- Do not wait for the appeal to resolve. The statute of limitations does not pause while the appeals court deliberates. The deadline to file has already passed for many taxpayers. If your window is still open, acting promptly is essential.
If the complexity of all this feels overwhelming, you are not alone. Navigating protective claims, IRS transcripts, and evolving case law on top of an existing tax debt is a lot to manage. That is exactly the kind of situation where professional tax debt relief help makes a real difference. See how working with a tax relief professional can simplify the process.
The Bigger Picture for Taxpayers with Existing Tax Debt
If you already owe back taxes that include pandemic-era penalties and interest, the Kwong case adds an important layer to your overall tax debt picture. A successful appeal by the government would leave your debt largely unchanged. A loss for the government, on the other hand, could reduce your balance or even eliminate a portion of it.
That uncertainty does not mean you should put your tax debt on hold. Interest and penalties continue to accrue on unpaid balances regardless of how the Kwong case turns out. Ignoring a tax debt is always costly. If you owe the IRS and are struggling to pay, there are tax debt relief programs available right now, including installment agreements, offers in compromise, and currently not collectible status, that can help you manage your situation today.
The Kwong appeal may eventually reduce what some people owe. But waiting years for an appeals court decision, while your balance grows and the IRS takes collection action, is rarely a sound strategy. Working with a tax professional to address your full situation, including any Kwong-related claims, is the most practical path forward.
Frequently Asked Questions
What is the Kwong case about in simple terms?
The Kwong case is a federal court dispute over whether a COVID-era tax law automatically extended IRS filing and payment deadlines for the entire pandemic period, roughly three and a half years. The lower court said yes, meaning penalties charged during that window may have been improper. The government is appealing, arguing the automatic extension was limited to just 60 days.
Is the Kwong ruling final?
No. The government has appealed the lower court’s decision to the U.S. Court of Appeals for the Federal Circuit. The ruling is not final, and the appeals court could affirm, narrow, or reverse the lower court’s decision. This legal uncertainty is why protective refund claims are so important: they preserve your rights while the outcome remains unsettled.
How do I know if I could be affected by the Kwong ruling?
You may be affected if you were assessed or paid failure-to-file penalties, failure-to-pay penalties, estimated tax penalties, or underpayment interest tied to federal tax obligations with deadlines that fell between January 20, 2020, and July 10, 2023. Reviewing your IRS account transcripts for those tax years is the best first step. A tax professional can help you interpret what you find.
What is a protective refund claim and why does it matter?
A protective refund claim is a formal filing, made on Form 843, Claim for Refund and Request for Abatement, that preserves your legal right to a refund while a related court case is still being decided. The IRS holds the claim in suspension until the law is settled. If you do not file a protective claim before the statute of limitations expires, you lose the right to that refund permanently, even if taxpayers ultimately win on appeal.
Does this ruling affect state tax penalties?
No. The Kwong ruling interprets federal tax law, specifically a section of the Internal Revenue Code. State tax agencies operate under their own statutes, and your state tax penalties are not automatically covered by this ruling. You would need to consult the laws of your specific state and seek guidance from a state tax professional if applicable.
Will the IRS automatically give me a refund if Kwong is upheld?
No. Even if the government loses the appeal and the Kwong ruling is fully affirmed, relief will not be automatic. You must have filed a timely protective claim to preserve your right to a refund. The IRS is not expected to proactively identify and refund every affected taxpayer without a formal claim on file. Taking action to protect your rights now is the only way to remain eligible.
