A significant new decision handed down by the U.S. Federal Court of Claims, Kwong, No. 1:2023cv00267, Fed. Cl. 11/25/25, opens the door to a wide range of refund claims by taxpayers affected by the COVID-19 pandemic.
But the door may be closing quickly. As was just pointed out by the National Taxpayer Advocate (NTA), the IRS’s watchdog, taxpayers only have until July 10, 2026, to submit a protective claim.
Background: Under Section 7508A of the Internal Revenue Code, the IRS may postpone certain filing requirements relating to a federally-declared disaster. This statute also allows an additional 60 days to be tacked onto the covered disaster period. Typically, a declaration is made when a specific geographic area is devastated by a hurricane, flood or other natural disaster.
However, President Trump issued a nationwide disaster declaration relating to the COVID pandemic lasting from January 20, 2020, through May 11, 2023. When the extra 60 days are added on, the disaster period is extended through July 10, 2023.
The main issue contested in the new case was whether section 7508A relief should be applied broadly to taxpayer responsibilities or be limited by IRS pronouncements.
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Key facts: The taxpayer, a resident of California, filed a lawsuit in 2023, seeking tax relief from penalties imposed for the 2007, 2010 and 2011 tax years. Normally, such a claim would be disallowed because it was filed more than two years after the applicable IRS notices. But the taxpayer argued that the deadline didn’t apply due to the Section 7508A provision. The IRS relied on the prevailing regulations to disallow the claims based on the timing restrictions. (Recent legislation has subsequently modified these rules.)
The upshot: The U.S. Circuit Court of Federal claims sided with the taxpayer. However, The IRS is expected to appeal this result.
The impact of the Kwong decision may be more far-reaching than you think. Revenue Procedure 2018-88 provides a comprehensive list of deadlines that may be affected by Section 7508A. The relief isn’t limited to just common tax return filings and payments. It also may be provided for—
- Filing Tax Court petitions;
- Lawsuits for refunds;
- Claims for credits or refunds;
Section 1031 “like-kind exchanges” of real estate; - Making qualified retirement plan contributions;
- Involuntary contributions;
- Certain business elections (e.g., electing S corporation status); and
- Responses to IRS notices.
The Court’s conclusion may also have tax return implications for tax return penalties, such as the failure-to-file penalty and failure-to-pay penalty, as well as electing portability of the estate tax exclusion for a deceased spouse’s estate.
Practical advice: Review the records of your clients to determine if they are eligible for any refunds from prior years. By filing a protective claim be July 10, 2023, a taxpayer can lock in their position if the IRS appeals the verdict in the Kwong case, as is expected.
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Tags: 7508A, COVID, disaster refunds, disaster relief, Income Taxes, IRS, kwong, pandemic, tax court, Taxes, taxpayer advocate
