Legacy Law Blog

Two recent court decisions have confirmed what many tax professionals have long suspected: the COVID-19 national emergency may have suspended far more federal tax deadlines than the Internal Revenue Service (IRS) acknowledged.

This development potentially entitles individual and business taxpayers to substantial refunds of penalties and interest assessed between January 20, 2020 and July 10, 2023. But the window to act is closing. If you want to preserve your claims, you should file before July 10, 2026.

Part I: The Statutory Framework: 7508, 7508A, and COVID‑19

From Servicemembers to Disaster Victims

Congress first authorized “disregarding periods” in wartime through Section 3804 in 1942, which suspended limitations periods and interest for servicemembers outside the Americas. In the 1954 Code, this concept became Section 7508, which disregards time for filing returns, paying tax, filing refund claims and pursuing U.S. Tax Court petitions for servicemembers in combat zones, and it similarly suspends interest and penalties during the combat‑zone service period plus 180 days.

In 1997, Congress added Section 7508A(a), allowing the treasury secretary to postpone for up to one year a broad set of “time‑sensitive acts” for taxpayers affected by federally declared disasters, significant fires, or terroristic or military actions. The 2019 amendments added Section 7508A(d), creating a mandatory, self‑executing disregarded period for specified “qualified taxpayers” whenever a federally declared disaster occurs.

How the COVID‑19 Disaster Period was Defined

For COVID‑19, the executive branch issued a nationwide emergency declaration under the Stafford Act, and FEMA issued state‑by‑state major disaster declarations stating that the incident period began on Jan. 20, 2020 and was “continuing.” Section 7508A(d), as then in effect, required that the period from the earliest incident date in the declaration through the date 60 days after the latest incident date “shall be disregarded” for qualified taxpayers.

The COVID‑19 public health emergency ended May 11, 2023, so the mandatory 60‑day tail pushed the disregarded period to July 10, 2023. Notice 2023‑21, by contrast, only granted narrower, discretionary relief for certain filing and payment obligations, but, as we will see below, a case called Kwong v. United States held that the statute itself provided broader protection that the notice could not limit.

Congress later amended Section 7508A(d) in November 2021 to cap the mandatory disaster period for future disasters and, in 2025, extended mandatory relief to 120 days and added refund lookback protections, but those changes do not apply retroactively to the COVID‑19 emergency.

Part II: The Key Cases – Abdo and Kwong

Abdo v. Commissioner: 7508A(d) is Mandatory and Self-Executing

In Abdo v. Commissioner, 162 T.C. 148 (2024), the taxpayers mailed their U.S. Tax Court petition 15 days after the usual 90‑day deficiency deadline, but within the COVID‑19 disaster window. The IRS moved to dismiss for lack of jurisdiction, arguing that federal treasury regulations limited the “mandatory” period in Section 7508A(d) to only those acts the secretary had already chosen to postpone under discretionary authority in Section 7508A(a).

The tax court disagreed and held that Section 7508A(d) is “unambiguously self‑executing” and provides a mandatory postponement period based on the statutory disaster window, not on selective IRS notices. The court invalidated Treas. Reg. § 301.7508A‑1(g)(1)–(2) to the extent those provisions tried to restrict the acts covered by the mandatory 60‑day period to those the IRS had already postponed under Section 7508A(a).

Why it matters: Abdo gave taxpayers a direct statutory argument that disaster-related postponement is automatic when Section 7508A(d) applies. For taxpayers, that changed the frame from asking for leniency to asserting a deadline extension required by law.

Kwong v. United States: Full COVID Window Disregarded

In Kwong v. United States, 179 Fed. Cl. 382 (Fed. Cl. 2025), a taxpayer named Kwong filed a refund suit in 2023 challenging the timeliness bar under Section 6532(a)(1) for several claims denied in 2020. The Court of Federal Claims held that, applying Section 7508A(d) as written, the COVID‑19 disaster declaration required that deadlines falling within the FEMA disaster period be postponed until at least July 10, 2023.

The court concluded that the nationwide COVID‑19 emergency, declared as beginning Jan. 20, 2020 and “continuing,” triggered a mandatory disaster period from Jan. 20, 2020 through May 11, 2023, plus the statutory 60‑day tail, ending July 10, 2023. It emphasized that “although Congress may not have anticipated a disaster declaration lasting more than three years, the statute’s express text nevertheless applies,” and therefore Mr. Kwong had until at least July 10, 2023 to file suit.

Why it matters: Kwong takes the reasoning of Abdo and applies it to penalty-refund timing in a way that directly supports abatement and refund claims. It is the clearest judicial statement so far that the COVID national emergency may have suspended penalty-triggering deadlines much longer than the IRS previously recognized. The IRS has signaled that it intends to appeal Kwong to the federal appellate circuit, so the final outcome remains uncertain. Regardless, the underlying statutory argument is strong enough that taxpayers should consider preserving their claims now.

Why These Holdings Matter

Together, Abdo and Kwong do three things that are critical for taxpayers:

1. They confirm that Section 7508A(d) operates automatically for qualified taxpayers. The IRS cannot narrow that relief through regulations or notices.
2. They treat the entire COVID‑19 FEMA disaster period (Jan. 20, 2020 – July 10, 2023) as a statutorily mandated disregarded period for covered acts, not just the limited dates the IRS chose to postpone.
3. They open the door to reexamining penalties, interest, and even statute‑of‑limitations computations for acts and periods that intersect that disaster window.

How the National Emergency Supports Penalty Abatements

The theory behind these cases is simple. If Section 7508A(d) automatically postponed applicable tax deadlines during the federally declared COVID disaster period, then penalties that depend on a missed deadline may have been assessed too early or in error.

That matters particularly for 2020 and 2021, because many filing, payment and refund-claim timelines fall within the national emergency period. In Kwong, the court read the 2019 statute to postpone deadlines through July 10, 2023, based on the March 2020 emergency declaration, the California major-disaster declaration beginning Jan. 20, 2020 and “continuing,” and FEMA’s later closure of the COVID incident period effective May 11, 2023.

The practical implication is that certain failure-to-file and failure-to-pay penalties, and potentially related interest tied to postponed deadlines, may be vulnerable to challenge if they were assessed as though the ordinary due date remained in place. The strongest reading of Kwong is not that every COVID-era penalty disappears, but that penalties premised on a deadline displaced by Section 7508A(d) may be invalid or refundable. Even if the appeals court ultimately disagrees with Kwong, filing a protective claim now preserves the right to a refund if the taxpayer-favorable interpretation prevails.

How This Differs from IRS Relief

The IRS has already provided limited administrative relief for some 2020 and 2021 taxpayers, but that relief is narrower than the statutory theory recognized in Abdo and Kwong. In its Dec. 18, 2023 announcement, the IRS said it would automatically waive failure-to-pay penalties for eligible taxpayers with assessed tax under $100,000 for 2020 or 2021 who received an initial balance-due notice between Feb. 5, 2022 and Dec. 7, 2023.

The IRS relief applies to certain Forms 1040, 1041, 1120 series, and 990-T returns for individuals, businesses, estates, trusts, and tax-exempt organizations, and it is automatic for taxpayers who meet the published conditions. But it is still only a targeted administrative waiver of failure-to-pay penalties, not a concession that Section 7508A(d) broadly postponed all relevant deadlines through July 10, 2023.

That distinction is important. The IRS program may already have helped some affected taxpayers, but Abdo and Kwong support a broader legal claim that certain penalties were not legally supportable in the first place because the underlying deadline had been postponed by statute.

Part III: What is Actually “Disregarded” During the COVID Window?

Covered Taxpayers and Taxes

Section 7508A(d)(2) defines “qualified taxpayers” to include any individual whose principal residence is in the disaster area, and similar rules apply for businesses whose principal place of business or records are located in the disaster area. Because every state, territory, and the District of Columbia received a COVID‑19 major disaster declaration, virtually every U.S. individual or business with a U.S. residence or place of business qualifies.

The statute applies broadly to federal income, estate, gift, employment and excise taxes for which filing, payment or other “time‑sensitive acts” fall within the disaster period. In practice, that includes most 2019–2022 individual income tax returns (Forms 1040), corporate returns (Forms 1120), and employment tax returns (Forms 941/940) whose normal or extended due dates landed between Jan. 20, 2020 and July 10, 2023.

Interest, Penalties and Overpayment Interest

Section 7508A(a)(2) authorizes postponement of “the amount of any interest, penalty, additional amount, or addition to the tax for periods after such date” during the disregarded period. Section 7508A(c) incorporates Section 7508(b), which in turn shuts off certain limitations on overpayment interest (including the 45‑day “no interest” rule under Section 6611(b)(3) and late‑return interest restrictions in Section 6611(e)) during disaster postponements.

The IRS’ Internal Revenue Manual acknowledges that overpayments generally earn interest during disaster postponement periods, and at least one class action (Fleisher v. United States, No. 1:24-cv-06083, S.D.N.Y.) now seeks overpayment interest for the full COVID‑19 disaster period. At the same time, taxpayers and the government are litigating whether underpayment interest and failure‑to‑file/failure‑to‑pay penalties may be assessed and accrued at all during the COVID disaster window, particularly for liabilities whose due dates fall within that period.

Why this Matters Now: Deadlines and Windows

These cases matter because they open a meaningful avenue for relief that many taxpayers may have overlooked. Abdo establishes that the statutory postponement was mandatory and self-executing, and Kwong applies that rule in a way that can support real-world penalty abatement and refund claims tied to the COVID emergency period. Although Kwong is expected to be appealed, the statutory argument it rests on remains available to taxpayers who file claims before the window closes.

For 2020 and 2021, in particular, the message is practical and immediate: do not assume the IRS’ published automatic relief is the full universe of available relief. If you were assessed penalties during the national emergency period, Abdo and Kwong provide a serious legal basis to revisit those assessments now even while the appeal is pending.

Refund and Abatement Opportunities

Kwong and the growing wave of commentary suggest that penalties and interest that accrued between Jan. 20, 2020 and July 10, 2023 for many federal tax liabilities may have been assessed contrary to Section 7508A(d). That includes:

• Failure‑to‑file penalties for returns with due dates in the disaster period (for example, 2019 Forms 1040 due July 15, 2020 or 2020 returns due in 2021).
• Failure‑to‑pay penalties and underpayment interest on amounts that remained unpaid during the disaster period.
• Overpayment interest that was not paid because the IRS applied Section 6611(b)(3) or (e) despite the disaster‑period override.

For penalties you have already paid, you can file Form 843, Claim for Refund and Request for Abatement, citing Section 7508A(d), Abdo and Kwong in the explanation and calculating the portion of penalties and interest attributable to the disaster window. For penalties that remain unpaid, Form 843 can be used as an abatement request, and the same arguments can be raised in a collection due process (CDP) hearing if the IRS attempts to collect. Generally, a refund claim must be filed within three years from the date the return was filed or two years from the date the tax was paid, whichever is later. Under the tolling interpretation of Section 7508A(d), those deadlines may themselves be extended through July 10, 2026.

Statutes of Limitations: Tolling v. Postponement

A critical unresolved issue is whether Section 7508A(d) simply postpones deadlines that fall inside the disaster period to July 10, 2023, or instead tolls the running of limitations periods for the entire disaster window plus 60 days.

• The IRS has long taken the view that 7508A only postpones due dates that fall within the disaster period and does not suspend the ongoing running of limitation periods outside that window.
• Taxpayer advocates, relying on statutory text and analogies like Artis v. District of Columbia, argue that “shall be disregarded” operates as tolling: the clock simply stops running during the disaster and resumes July 10, 2023.

This distinction can be outcome‑determinative. For example, a taxpayer who timely filed a 2020 Form 1040 on April 15, 2021 and fully paid may, under a tolling view, have until July 10, 2026 to file a refund claim, because the three‑year period would not begin running until July 10, 2023. Under a pure “postponement‑only” view, the refund deadline would have expired April 15, 2024. Because the law is unsettled, the safest course is to file a protective claim before July 10, 2026 to preserve your rights while the courts work through these issues.

Administrative Deadline – July 10, 2026

Many commentators now treat July 10, 2026 as a practical outer window for claims tied to COVID‑era penalties and interest, particularly under a tolling interpretation of Section 7508A(d). Even under a narrower view, filing a protective claim by that date is a low‑cost way to preserve your rights while the law evolves. Because the cost of filing Form 843 is minimal and the potential refund can be substantial, taxpayers with any doubt about their eligibility should consider filing before the deadline.

What You Should do Now

If you were assessed penalties for 2020 or 2021, start by reviewing your IRS transcripts and notices to identify assessments tied to deadlines that fell within the COVID disaster period. The most relevant amounts will often involve failure-to-file penalties, failure-to-pay penalties and related interest assessed on the assumption that the original deadline remained in effect.

Next, determine whether you already received the IRS’ automatic 2023 failure-to-pay relief. That narrower program may reduce but not eliminate the need for a separate claim. If you believe broader relief is appropriate, you may need to file a refund or abatement claim grounded in Section 7508A(d) and supported by Abdo and Kwong.

The available path depends on your situation. If you already paid the penalty, a refund claim is the appropriate route. If the penalty remains outstanding, an abatement request may be more immediate. Either way, the key is to frame the argument as a statutory timing issue under Section 7508A(d), not simply as a traditional reasonable-cause request, although reasonable cause can be raised as a fallback argument if the statutory claim is denied.

Taxpayers with questions regarding the impact of Kwong on their specific tax balances should contact a tax practitioner before the July 10, 2026 deadline.