While the issue is still developing, the decision may create meaningful opportunities to revisit prior tax positions and potentially recover amounts previously paid or abate remaining penalty and interest balances.
Case Overview
The dispute in Kwong v. United States centers on the interpretation of Internal Revenue Code §7508A, which allows for the postponement of tax-related deadlines in response to federally declared disasters.
During the COVID-19 pandemic, the IRS issued a series of notices granting limited extensions for filing and payment obligations. However, the court in Kwong focused on the statutory language itself and concluded that the relief was not as limited as the IRS applied in practice.
Instead, the court interpreted the law as allowing for a broader suspension of deadlines tied to the full duration of the federally declared disaster period, plus six months. Under the court’s interpretation, many tax deadlines that would have otherwise triggered penalties or interest were effectively deferred, so certain penalty and interest would not have been due.
What the Court’s Interpretation Suggests
Under the court’s reading, many tax deadlines that fell between January 20. 2020 and July 10, 2023 may have been effectively postponed. If that interpretation is ultimately upheld, it could mean that:
- Certain penalties, including those for late filing or payment, may not have been properly triggered and assessed.
- Interest on underpayments may not have accrued during portions of that period.
- Some amounts already paid to the IRS for penalties or interest could be eligible for refund.
This represents a shift from the typical framework, where taxpayers must justify relief through reasonable cause or administrative discretion.
Why This Matters for Abatement or Refund
From a tax controversy standpoint, the distinction here is significant.
Historically, requests for penalty and interest relief have relied on demonstrating reasonable cause, administrative error, or reliance on IRS guidance. The Kwong decision introduces a different approach, whether the penalty or interest should not have been imposed in the first place due to a statutory suspension of deadlines that resulted from the national disaster declaration.
If the court’s interpretation is ultimately upheld, deadlines were legally suspended, so some penalties and interest assessed during the pandemic period could be viewed as inconsistent with the law.
As such, the issue may not be whether relief should be granted, but whether the IRS had the authority to impose those charges to begin with. That difference can change both the strategy and the likelihood of success when pursuing recovery.
Potential Next Steps for Taxpayers
Taxpayers who incurred penalties or interest during the pandemic period between January 20, 2020 and July 20, 2023 may want to consider:
- Reviewing IRS account transcripts for affected years.
- Identifying penalty and interest assessments and/or payments that fall within the statute of limitations for abatement or refund claims.
- Evaluating whether to file Form 843 to request a refund or abatement.
- Considering protective claims while the legal landscape continues to evolve.
Because refund claims are time-sensitive, early evaluation is particularly important, as all Form 843 requests for refund or abatement must be filed no later than July 10, 2026.
Key Takeaways
The Kwong v. United States decision may signal a shift in how pandemic-era tax relief is understood and applied. Key considerations include:
- A broader interpretation of statutory deadline relief under IRC §7508A.
- The possibility that certain penalties and interest were improperly assessed.
- Opportunities to pursue refunds or abatements for prior paid penalties and interest and for unpaid penalties and interest that are still accruing.
- The importance of timely action given statute of limitations constraints.
It is important to note that Kwong v. United States is not necessarily the final word on this issue. Additional court decisions, or guidance from the IRS, may further clarify or challenge the Court’s decision in this case, so it is important to protect your position now.
As a result, taxpayers should approach this opportunity carefully, balancing potential benefits with the uncertainty that remains.
How Omega Accounting Solutions’ Tax Controversy Team Can Help
Given the technical complexity and evolving guidance surrounding Kwong v. United States, a careful and informed review is essential.
If you have questions about how this ruling may affect your situation, or if you would like assistance evaluating potential refund or abatement opportunities – including the treatment of penalties and interest under the §7508A framework – Omega Accounting Solutions’ Tax Controversy team can help.
Our team assists clients with assessing eligibility, identifying potential refund opportunities, and preparing and filing Form 843 refund and abatement claims where appropriate.