The Kwong Case Explained: How Millions of Taxpayers May Be Eligible for IRS Refunds

 The case centers on a federal law known as Internal Revenue Code Section 7508A.

Congress enacted this law to provide relief to taxpayers affected by federally declared disasters. When a qualifying disaster occurs, the IRS has authority to postpone certain tax deadlines. During the COVID-19 pandemic, the President issued a nationwide emergency declaration beginning January 20, 2020.

The IRS subsequently announced various postponements and extensions of tax deadlines. However, the plaintiffs in the Kwong case argued that the IRS did not fully apply the relief that Congress intended under Section 7508A. 

The Court of Federal Claims agreed. The court concluded that the COVID-19 disaster declaration triggered statutory protections that effectively postponed numerous tax deadlines until July 10, 2023. As a result, certain penalties and interest assessed by the IRS during that period may have been improper.

The IRS disagrees with the ruling and has appealed the decision. That means the final outcome remains uncertain. However, waiting until the appeal is resolved may cause taxpayers to lose important rights because refund claim deadlines continue to run.

 Most taxpayers assume that once penalties are assessed and paid, the matter is closed.

The Kwong decision suggests that may not be true.

If the courts ultimately uphold the ruling, taxpayers may be entitled to refunds for:

• Failure-to-file penalties
• Failure-to-pay penalties
• Estimated tax penalties
• Interest charged on tax liabilities
• Other penalties connected to postponed deadlines

For many taxpayers, the potential refunds could be substantial.

For businesses that accumulated significant payroll tax penalties during the pandemic, the refund amounts could reach thousands or even tens of thousands of dollars.

 Based on the National Taxpayer Advocate's analysis, July 10, 2026, may represent a key deadline for preserving certain refund rights.

For many taxpayers, failing to act before this date could eliminate opportunities that may otherwise exist if the Kwong decision is ultimately upheld.

Every taxpayer's situation is different. The applicable deadline may vary depending on:

• The tax year involved
• The type of tax
• Whether payments were made
• Whether prior claims were filed
• Whether the taxpayer is seeking penalties, interest, or tax refunds

This is why individualized review is critical.

 You should strongly consider a review if you:

• Paid IRS penalties between 2020 and 2023
• Paid substantial IRS interest
• Filed late returns during the pandemic
• Missed filing a return that may have generated a refund

• Received payroll tax penalties
• Received late filing penalties
• Paid significant IRS interest charges
• Experienced COVID-related disruptions

If you received IRS notices assessing penalties or interest during the COVID disaster period, your account should be reviewed.

Our team can assist with:

We review account transcripts to identify potentially affected penalties, interest, and filing periods.

We calculate potential refund amounts and evaluate available filing positions.

We prepare and file appropriate protective claims designed to preserve your rights while the litigation continues.

We evaluate alternative relief opportunities that may exist regardless of the ultimate outcome of Kwong.

We help taxpayers understand both the opportunities and risks associated with filing claims.

Click here to schedule your paid consultation with a CPA.

No. The IRS has appealed the decision, and the final outcome remains uncertain.

Potentially, yes. Many claims involve penalties and interest that have already been paid.

Absolutely. Businesses may have some of the largest refund opportunities because payroll tax penalties can be substantial.

In many cases, waiting could be risky because statutes of limitation may expire before the appeal concludes.

The National Taxpayer Advocate has indicated that certain taxpayers may want to evaluate whether Kwong affects their ability to claim previously expired refunds.

The Kwong case may ultimately become one of the most significant taxpayer rights decisions arising from the COVID-19 era.

While the final outcome remains uncertain, taxpayers should not confuse uncertainty with inaction. The greatest risk may not be losing the appeal—it may be failing to preserve refund rights before statutory deadlines expire.

If you paid IRS penalties or interest during the COVID years, received IRS notices between 2020 and 2023, or believe you may have missed a refund opportunity, now is the time to review your situation.

The window to protect your rights may be closing.

BELNAVIS is currently assisting individuals and businesses with transcript reviews, refund analyses, and protective refund claim preparation.

 The National Taxpayer Advocate (NTA), an independent organization within the IRS that advocates for taxpayer rights, has devoted a four-part series to explaining the potential impact of the Kwong decision.

The NTA's message has been consistent:

Taxpayers should not wait until the litigation is finished before protecting their refund rights.

Since the statutes of limitation continue to expire, taxpayers who delay may lose refund opportunities permanently—even if the courts ultimately rule in favor of taxpayers.

This is why the NTA has encouraged taxpayers to consider filing formal or protective refund claims before applicable deadlines expire. Below is a summary of several articles published by NTA. 

 The National Taxpayer Advocate explained that the potential impact extends far beyond a small group of taxpayers.

According to the NTA, tens of millions of taxpayers may have paid penalties and interest that could be affected by the court's interpretation of Section 7508A.

Affected taxpayers may include:

Individuals who:

• Filed returns late during the pandemic
• Paid taxes after the original due date
• Owed estimated tax penalties
• Entered payment arrangements with the IRS

Businesses that incurred:

• Payroll tax penalties
• Failure-to-deposit penalties
• Late filing penalties
• Late payment penalties

Independent contractors and sole proprietors who experienced financial hardship during the pandemic may be among the largest groups affected.

 One of the most important lessons from the NTA's analysis is that timing matters.

Even if taxpayers are legally entitled to a refund, they generally must file claims within specific statutory periods.

If those deadlines pass, the IRS can deny the refund regardless of the merits of the claim.

This is where many taxpayers face risk.

Waiting for the courts to issue a final decision could push taxpayers beyond the refund statute expiration date.

In other words:

A taxpayer could ultimately be correct and still lose the refund because the claim was filed too late.

 One of the most important lessons from the NTA's analysis is that timing matters.

Even if taxpayers are legally entitled to a refund, they generally must file claims within specific statutory periods.

If those deadlines pass, the IRS can deny the refund regardless of the merits of the claim.

This is where many taxpayers face risk.

Waiting for the courts to issue a final decision could push taxpayers beyond the refund statute expiration date.

In other words:

A taxpayer could ultimately be correct and still lose the refund because the claim was filed too late.

 Perhaps the most surprising aspect of the NTA's analysis is that the impact may extend beyond penalties and interest. The NTA has suggested that the legal reasoning in Kwong could potentially affect:

Taxpayers who never filed returns but were entitled to refunds may have additional time to claim those refunds.

Some taxpayers whose refund claims were previously denied due to timing limitations may have new arguments available.

Certain credits, deductions, and other tax benefits connected to returns filed during the disaster period may warrant review.

Since the law in this area is still developing, taxpayers should seek professional guidance before assuming they are ineligible.

 In May 2026, the IRS formally appealed the Kwong ruling.

This means the case is not final.

The appellate court could:

• Affirm the decision
• Reverse the decisio
• Modify the decision
• Return the case for further proceedings

Regardless of the outcome, the Journal of Accountancy reported that practitioners and taxpayer advocates remain concerned that taxpayers could lose rights if they wait until the appeal concludes.

This is precisely why protective claims are receiving so much attention.

For many taxpayers, failing to act before this date could eliminate opportunities that may otherwise exist if the Kwong decision is ultimately upheld.