A federal court ruling has confirmed what some attorneys suspected: the COVID-19 pandemic disaster declarations may have paused tax filing and payment deadlines for more than three years from when emergency declarations were declared in 2020 through the end of such declarations in June of 2023. Taxpayers who paid interest or penalties accrued during this period may be entitled to substantial refunds. There are time limits to such recovery, so time is of the essence to determine whether you qualify.
The Legal Foundation
The story begins with I.R.C. § 7508A(d), which Congress amended in late 2019 to create automatic 60-day extensions from the end of a presidentially declared major disaster. The law, originally designed with hurricanes in mind, paused deadlines for filing returns, paying taxes, and even bringing lawsuits. But shortly after the law was signed, the COVID-19 pandemic struck. In March 2020, President Trump declared a nationwide disaster beginning January 20, 2020—crucially, without specifying an end date.
When President Biden declared the pandemic disaster over on May 11, 2023, that decision triggered the statutory 60-day clock, setting July 10, 2023, as the crucial deadline. According to the U.S. Court of Federal Claims, this means the traditional payment and filing dates and deadlines didn’t apply during that entire period.
The Kwong Decision: Setting the Precedent
The ruling came in Kwong v. United States, decided in November 2025, by the U.S. Court of Federal Claims. The court held that, for purposes of the taxpayer’s deadline to file a refund suit, the 2019 version of I.R.C. § 7508A(d), as applied to the COVID-19 pandemic, extended filing periods until 60 days after the emergency declaration ended—July 10, 2023. The Court reasoned that although “Congress may not have anticipated a disaster declaration lasting more than three years, the statute’s express text nevertheless applies.”
The court rejected the IRS’s regulatory attempts to limit the mandatory postponement period to one year, finding that the regulation “misread the statute” and was inconsistent with the plain language of I.R.C. § 7508A(d). Importantly, the court noted that Congress amended the statute in November 2021 to prevent such open-ended extensions going forward, but those amendments applied only to future disasters—not to the already-ongoing COVID-19 emergency.
A Taxpayer’s $20.8 Million Claim
Now a taxpayer is seeking relief from the interest that accrued during the suspended time. The taxpayer had a transfer pricing case before the United States Tax Court related to the 2008 tax year. A stipulated decision was entered in the Tax Court in March of 2023 for an approximate $53 million deficiency. Then, the IRS sent the taxpayer a bill for over $106 million, which included approximately $52 million in underpayment interest that accrued from 2008 through 2023. The taxpayer has filed a complaint against the government requesting the return of $20.8 million in interest that accrued during the pandemic.
The taxpayer’s legal argument is straightforward: Under I.R.C. § 7508A(d), the COVID-19 incident period “shall be disregarded” in determining the amount of any interest owed by a qualified taxpayer. Because the taxpayer’s principal place of business was in California—a declared federal disaster area from January 20, 2020, through May 11, 2023—underpayment interest should not have accrued during that period (plus 60 days thereafter). The taxpayer seeks a refund of the interest that accrued during the suspended period, pursuant to the plain language of the statute.
What This Means Going Forward
Many taxpayers who have recently settled with the IRS, have ongoing disputes with the IRS, or have money currently due to the IRS, may have an argument that certain amounts of interest and penalties should be refunded or abated for the affected period. There are deadlines associated with such claims, so time is of the essence.
While Congress changed the law in 2021 to prevent such issues with future disasters, lawmakers only applied that rule-change prospectively. For the COVID-19 disaster, the original statutory text arguably remains applicable—at least according to some courts. It is highly unlikely that the IRS will voluntarily abate or refund interest and penalties considering the current uncertainty surrounding applicable law. The law will likely develop over time through the various courts and appellate courts. Taxpayers potentially impacted by these issues should consider their options, and be cognizant of the timing and other issues associated with seeking an abatement or refund of interest or penalties.
