Section 7508A After Kwong: A Procedural Rule That May Have Substantive Refund Consequences

The US Court of Federal Claims’ decision in Kwong v. United States may pose beneficial opportunities for taxpayers and litigation risk for the government by altering the substantive amount of interest, penalties, and recoverable refunds—but taxpayers should ensure they take necessary action before associated deadlines expire.

WHY TAXPAYERS SHOULD REASSESS REFUND CLAIMS, INTEREST, AND PENALTY EXPOSURE

In late 2025, the US Court of Federal Claims decided Kwong v. United States, [1] where it considered the impact of Section 7508A extension periods in the context of the federal COVID-19 disaster declaration.

This recent decision has highlighted a provision that has historically been viewed as a procedural rule governing filing deadlines, but is now being applied in ways that may affect the amount of recoverable refunds. As a result, taxpayers may have materially stronger refund positions than previously understood, and for greater amounts—but those opportunities are time-sensitive, with key deadlines approaching in 2026.

Taxpayers may also have access to years and issues previously believed to be foreclosed due to statutory periods of limitations. Taxpayers should consider whether refund opportunities are now available and take action before these extended deadlines expire.

WHAT SECTION 7508A DOES—AND WHY IT MATTERS NOW

Section 7508A provides relief to taxpayers affected by federally declared disasters by postponing federal tax deadlines associated with certain tax-related acts, including both tax return and refund claim filing deadlines. Importantly, Section 7508A applies not only to the timing of filings, but also to the accrual of interest and certain penalties [2] ; and the “amount of any credit or refund [3],” including the application of the section 6511 lookback limitation.

While subsection (a) authorizes the Internal Revenue Service (IRS) to postpone certain deadlines, subsection (d), enacted in 2019, operates differently. Added by Congress to provide taxpayers greater certainty that their federal tax deadlines would be extended in the event of a federally declared disaster, [4] it provides a mandatory, self-executing suspension of time for “qualified taxpayers.” [5] For federally declared disasters between December 20, 2019 and November 21, 2021, this suspension begins on the earliest incident date specified in the disaster declaration and continues 60 days after the latest incident date. [6]

For the COVID-19 disaster, this period runs from January 20, 2020, through July 10, 2023. [7]During this time, the statute directs that the period be disregarded in determining a range of tax-related deadlines and computations.

FROM ABDO TO KWONG: EXPANDING THE SCOPE OF DISASTER RELIEF

The Court of Federal Claims was not the first to consider the application of Section 7508A in the context of COVID-19. In Abdo v. Commissioner, [8] the US Tax Court first considered the application of the provision in the context of the government’s challenge to the timeliness of a petition. The taxpayers in Abdo had received a statutory notice of deficiency requiring them to file a petition by March 2, 2020; however, it was not filed until March 17, 2020. In finding for the taxpayers, the court held that pursuant to Section 7508A, an automatic postponement period was in effect. As the taxpayers’ petition was filed within this postponement period, it was timely. [9]

In reaching this decision, the court held that Section 7508A(d) creates a mandatory, self-executing extension; and it invalidated a US Department of the Treasury regulation that sought to limit the provision’s application. The court emphasized that the statute’s plain language controls and the regulation could not narrow the statue nor change the result the statute dictates. [10]

Kwong builds on that foundation by addressing the duration and effect of the mandatory extension periods under Section 7508A. The taxpayer in Kwong had filed refund claims that were disallowed in September and October 2020. More than three years later, in February 2023, the taxpayer instituted a refund suit. The government filed a motion for summary judgement arguing that the claims were untimely. In concluding that the suit was timely, the Court of Federal Claims held that Section 7508A(d) requires the entire disaster period (plus 60 days) to be disregarded, applying the rule broadly to extend the time for filing a refund suit. Like the Tax Court in Abdo, the court in Kwong relied on the statute’s plain text and declined to follow regulatory interpretations that imposed additional limitations. [11]

Together, these decisions establish that Section 7508A(d) applies automatically; covers the full extension period from January 20, 2020 through July 10, 2023; and is not constrained by regulatory limitations inconsistent with the statute.

POTENTIAL OPPORTUNITIES FOR TAXPAYERS

Applying the reasoning of Abdo and Kwong to the full scope of Section 7508A’s application to interest, penalties and other timing issues may give rise to meaningful refund and abatement opportunities for certain taxpayers. These opportunities may include the following:

• Penalty relief for delayed actions during the disaster period: Postponed deadlines may excuse the late performance of obligations with due dates falling within the COVID-19 relief period, potentially eliminating penalties for failure to timely file returns, pay taxes, or make required estimated tax payments.
• Refunds of interest and penalties accrued during the relief period: Accrued interest and penalties may be subject to suspension during the disaster period, even where the underlying liability arose before the emergency. Taxpayers with extended examinations that settled, or that made payments including interest or penalties accruing during the relief period, may have a basis to seek refunds of those amounts.
• Extended deadlines for refund claims: The relief period may extend the time to file refund claims across multiple contexts. For example, taxpayers may be able to file timely refund claims through mid-2026, with respect to returns required to be filed or actually filed during the relief period, even where the ordinary statute of limitations would otherwise have expired or the Section 6511(b) lookback rules would have limited recovery.
• Claims for previously unclaimed overpayment interest: Taxpayers that received refunds during 2020–2023 without overpayment interest may be entitled to additional amounts. The statutory provisions that limit overpayment interest may not apply where a taxpayer qualifies for disaster relief and files within the extended period.

THE IMPORTANCE OF MID-2026

For many taxpayers, critical deadlines to preserve potential refund claims arising from the COVID-19 disaster period may begin to expire in mid-2026.

Refund claims are generally required to be filed within three years from the time the return was filed or two years from the time the tax was paid, whichever is later. [12] In addition, the amount of any refund may be limited by the Section 6511(b)(2) lookback rules, which restrict recovery based on when the relevant tax payments were made.

Section 7508A(d), as interpreted in Abdo and Kwong, requires that the period from January 20, 2020, through July 10, 2023, be disregarded in applying these limitations. As a result, the applicable limitations periods for many refund claims may be effectively extended by the length of the COVID-19 disaster period.

For taxpayers whose returns were due, filed, or whose payments were made during this period, the extended limitations period may result in filing deadlines that fall in mid-2026. (For example, July 10, 2026—three years from the end of the extended period that expired on July 10, 2023—may be a key date for certain taxpayers.) Accordingly, taxpayers should evaluate potential claims promptly to ensure that any available opportunities are identified and preserved before the applicable limitations periods expire.

IMMEDIATE ACTION ITEMS TO PRESERVE POTENTIAL CLAIMS

Taxpayers should consider taking proactive steps now to preserve potential claims:

• Identify affected periods: Review tax years 2019 through 2022 for payments, penalties, or interest assessed during the disaster period.
• Evaluate refund opportunities: Consider whether previously denied or limited claims may warrant reconsideration or whether refunds previously received were paid without the inclusion of overpayment interest.
• Preserve claims: Consider filing refund claims or requests for abatement (utilizing Form 843) and protective claims where appropriate.
• Monitor deadlines: Review the deadline(s) to file claims relating to the COVID-19 period because, for many taxpayers, such deadline may fall as early as mid-2026.
• Assess strategic posture: Consider how Section 7508A may affect ongoing examinations, Appeals proceedings, and settlement discussions.
• Consider state-level claims: Consider whether additional claims at the state level exist and take appropriate steps to preserve those claims as appropriate. Most states extended the payment and filing deadlines during the disaster period; however, these provisions and implications vary from state to state.

KEY TAKEAWAYS

Section 7508A is emerging as more than a procedural rule governing deadlines. As interpreted by recent courts, it has the potential to affect the substantive amount of interest, penalties, and recoverable refunds, creating both opportunity for taxpayers and litigation risk for the government.

Taxpayers should review their positions in light of these developments and act promptly to preserve their rights to recover overpayments.