Key Points

• Millions of Taxpayers May Be Affected. According to the National Taxpayer Advocate, tens of millions of taxpayers may be entitled to refunds or abatements of penalties and interest that the IRS assessed during the nearly 3.5-year COVID-19 federal disaster period.
• Broad Cross-section of Taxpayers. Individuals, small businesses, large corporations, estates and trusts may be eligible. The opportunity covers a wide variety of taxes, including income, employment, estate, gift and excise taxes.
• The Window to Act Is Closing Rapidly. Taxpayers generally must file a claim for refund by July 10, 2026.
• Recent Court Decisions Have Expanded Taxpayer Rights. The Kwong v. United States decision builds on the 2024 United States Tax Court ruling in Abdo v. Commissioner, which held that the postponement provisions of Internal Revenue Code (IRC) Section 7508A are mandatory and self-executing. The government has indicated it intends to appeal the Kwong decision.

Tens of millions of taxpayers may be entitled to refunds or abatements of penalties and interest that the IRS assessed during the pandemic, but only if they act quickly.

A significant deadline is fast approaching. Taxpayers who accrued interest or penalties between 2020 and 2023 generally must seek abatement or file a refund claim by July 10, 2026.

If they don’t, they may forfeit their right to the money.

Background

In Kwong v. United States, 179 Fed. Cl. 382 (Nov. 2025), the Court of Federal Claims held that IRC Section 7508A(d) postponed federal tax deadlines during the COVID-19 pandemic because federal disaster declarations were in effect during that period, extending federal tax deadlines between January 20, 2020, and July 10, 2023. Under Section 7508A, the IRS lacked authority to assess underpayment interest; a variety of penalties including, but not limited to, failure-to-pay penalties, failure-to-file penalties and estimated tax penalties; and interest on penalties during that period. The deadline to file refund claims and United States Tax Court petitions was also suspended.

We previously discussed Section 7508A and the Kwong and Abdo v. Commissioner cases here.

National Taxpayer Advocate Urges Action

The National Taxpayer Advocate, Erin M. Collins, recently published a series of blog posts calling this a “major refund opportunity” and urged affected taxpayers to protect their rights and file refund claims by the deadline. She also called on the tax community to spread the word about this opportunity and warned that without action, this situation may produce dramatically different outcomes for the “well advised” versus the “unaware.”

Collins is critical of the IRS’ lack of guidance, calling on the agency to “publicize this issue to provide taxpayers with the information they need to understand it and to file refund claims, protective refund claims, or requests for abatement of interest and penalties.”

Under the Kwong decision, taxpayers may be entitled to a refund or abatement of certain amounts assessed during the COVID period, including:

• Penalties assessed for failure to timely file returns, failure to pay taxes, or failure to make estimated tax payments.
• Interest that began accruing earlier than it should have, or not at all.
• Overpayment interest for the 2020–2023 disaster period.

Impacted taxpayers represent a broad cross-section of the public, including individuals, small businesses, large corporations, estates, and trusts. The issue may also affect taxpayers who filed late international information returns, which can result in significant penalties even when no tax is due.

Growing Media Attention and Government Response

This issue has attracted significant attention from a variety of media outlets, including USA Today, MSN and The Wall Street Journal. As The New York Times reported on May 8, 2026, tens of millions of Americans may be due refunds of penalties and interest. IRS data shows that many potentially affected taxpayers are low- and moderate-income people who are less likely to have professional tax help and hear about potential refunds. As Ms. Collins stated, "For them, a refund is not just a technical tax adjustment. It can make a real financial difference."

Taxpayers should be aware that the Kwong decision is not yet final. Kenneth Kies, an assistant secretary at the Treasury Department, stated that the administration considers the case "wrongly decided." The National Taxpayer Advocate anticipates the Department of Justice will appeal the decision, and it may take several years until the issue is finally resolved by the courts.

However, the real risk for taxpayers is not the outcome of the appeal — it is waiting too long and losing the ability to make the argument at all. As such, taxpayers should file protective claims to preserve their rights while the legal issue is resolved.

Refund Statute of Limitations

Generally, taxpayers have the later of three years from the time a return was filed or two years from the time tax was paid to file a claim for credit or refund. Because the three-year limitations period runs from July 10, 2023 (the end of the postponement period), most taxpayers must file claims by July 10, 2026.

Filing a Protective Claim

Because the law in this area is still being litigated, taxpayers should consider filing protective claims to preserve their rights. A protective claim allows taxpayers to preserve their right to a refund while the law is unsettled.

Taxpayers should consult with a trusted tax professional or review their federal income tax account transcripts to determine whether they were assessed penalties or interest during the disaster period. If a taxpayer was assessed or accrued penalties and interest during the postponement period, they should consider filing a claim for refund or request for abatement.

Fox Rothschild's Tax Controversy & Litigation team can help determine whether businesses and individuals are eligible to file refund claims or seek abatement before the applicable limitation periods expire.

For more information, please contact Matthew D. Lee at mlee@foxrothschild.com, Brian C. Bernhardt at bbernhardt@foxrothschild.com, or Jonathan M. Wasser at jwasser@foxrothschild.com.

This information is intended to inform firm clients and friends about legal developments, including the decisions of courts and administrative bodies. Nothing in this alert should be construed as legal advice or a legal opinion. Readers should not act upon the information contained in this alert without seeking the advice of legal counsel. Views expressed are those of the author(s) and not necessarily this law firm or its clients. Prior results do not guarantee a similar outcome.