Federal court decisions rarely move fast enough to feel urgent. Kwong v. United States is an exception. Decided by the U.S. Court of Federal Claims in late 2025, the case reexamined how long the Internal Revenue Service could charge penalties and interest during the COVID-19 pandemic, and the court's answer was broader than most taxpayers expected. Discussion of IRS penalty and interest refunds tied to the pandemic years has followed ever since. If you paid a tax bill late at any point between January 20, 2020, and July 10, 2023, the Kwong ruling may apply to you, whether you filed as an individual, ran a business, or advised clients through one of the more disruptive stretches in recent tax administration.
Taxpayers affected by the Kwong ruling are often asking a practical question. Where do you fit in that group? Not every taxpayer with a 2020 or 2021 return needs to act, and the decision is still moving through the appeals process. But understanding where you, your business, or your clients land in this picture is the first step toward deciding whether a closer look at old IRS penalty assessments is worth the time.
Businesses Affected by the Kwong Decision
Business taxpayers were at the center of much pandemic-era penalty activity, making them a natural focus of this ruling. Corporate taxpayers, closely held businesses, partnerships, S corporations, limited liability companies, and sole proprietors with returns or payments due during that disaster window may have grounds to revisit what they paid.
Pass-through entities deserve a particular look. Failure-to-file penalties on partnership and S corporation returns are calculated per partner or shareholder, per month, so a late filing during the pandemic could have produced a penalty well out of proportion to the entity's actual tax liability that year. Businesses that struggled with cash flow in 2020 and 2021, paid payroll or estimated tax payments late, or filed late while sorting out PPP loans and employee retention credit claims, are exactly the kind of business taxpayers this decision speaks to. Nonprofit organizations with payment or filing obligations in that window fit the same pattern.
Individuals Affected by the Kwong Ruling
Individual taxpayers are not a side note here. Anyone who filed a personal return late, paid a balance due after the deadline, or missed estimated tax payments between January 2020 and mid-2023 may have accrued failure-to-file penalties, failure-to-pay penalties, or underpayment interest during a period that, under the reasoning many practitioners draw from Kwong, should not have counted against them at all.
This group is wide. Self-employed individuals and sole proprietors often overlap with the business category above, since their tax obligations are reported on personal returns. Plenty of individual taxpayers also went through job loss, reduced income, or plain administrative disruption during the pandemic and ended up paying penalties they never thought to question afterward. The Kwong ruling gives those old payments a second look, even years later.
Tax Professionals and the Kwong Ruling
Certified public accountants, enrolled agents, tax attorneys, and financial advisors are facing a different kind of question. The implications of the Kwong ruling for CPAs and the implications of the Kwong decision for tax advisors both come down to the same root issue, a compliance review question rather than an automatic obligation, just applied to different parts of a client's file. It is starting to shape how accounting firms talk to clients about old IRS notices.
Reviewing every prior client's account transcript for COVID-era penalty assessments is not automatic and typically falls outside the scope of a standard engagement. Even so, tax advisors and tax controversy counsel are increasingly expected to flag the issue, explain what the ruling might mean for a specific client, and let the client decide whether a deeper review of the transcript makes sense. Corporate tax departments handling multi-entity filings face the same question on a larger scale, often across several tax years and several subsidiaries at once. For CPAs in particular, the implications go beyond any single client file. It is becoming part of the broader standard-of-care conversation shaping how the profession approaches the 2026 filing season.
What the Kwong Decision Said
Understanding why these groups may be affected requires a closer look at what the court actually decided. In Kwong v. United States, 179 Fed. Cl. 382 (2025), the Court of Federal Claims ruled on one taxpayer's suit over penalties across several tax years. The court held that his lawsuit was timely because Internal Revenue Code Section 7508A(d), in the version that applied before a 2021 amendment, automatically extended his deadline to sue for the full length of the COVID-19 federally declared disaster, plus the additional 60 days required by the statute. That window runs from January 20, 2020, through July 10, 2023. The ruling itself was about that filing deadline. It did not decide, as a general matter, whether the IRS lacked authority to assess penalties and interest during the disaster period.
The relief window is longer than anything the IRS or the Treasury Department guidance behind it ever granted on its own. The agency's administrative pandemic relief came through a series of scattered notices covering specific tax years and groups. Kwong, building on the Tax Court's 2024 decision in Abdo v. Commissioner, treats the postponement language in Section 7508A(d) as mandatory rather than discretionary, joining a small but growing list of court decisions reading the disaster relief statute the same way. The National Taxpayer Advocate and several practitioners now argue that the same statutory language should apply to penalty and interest accrual and to the separate deadline for filing a refund claim, just as broadly, even though the court itself was deciding a narrower question. The government has appealed the ruling to the U.S. Court of Appeals for the Federal Circuit, so nothing here is final. Even so, the decision has already changed how businesses, individuals, and the professionals who represent them are looking at old tax bills.
The COVID tax relief implications here extend beyond income tax alone. The National Taxpayer Advocate has noted that the affected population spans individuals, small businesses, large corporations, estates, and trusts, and that the underlying obligations may involve income, employment, estate, gift, and excise taxes. Penalties tied to late-filed international information returns fall inside the same window, too, which matters because those penalties can be substantial even when no tax is actually owed.
Which Taxpayers Should Look Closer
The taxpayers most affected by the Kwong ruling are generally those who paid a meaningful amount in penalties or interest tied to a 2019 through 2022 tax year, particularly where the underlying deadline fell between January 20, 2020, and July 10, 2023. Put another way, who may benefit from the Kwong decision tends to turn on dollar amounts and filing dates more than on the taxpayer's category.
A few refund claim considerations shift the calculus. Larger combined penalty and interest amounts generally justify a transcript review more than small ones, and multi-entity or multi-year exposure adds up faster than a single missed deadline. Overpayment interest the IRS owed but calculated using the wrong dates is part of the picture, not just the penalties the taxpayer paid out. Taxpayers whose underlying liability arose before January 20, 2020, should not assume they are excluded either. Some practitioners read Kwong as reaching the interest and penalties that accrued on older debts during the disaster window, though the IRS disagrees and existing Treasury regulations point the other way on that specific question.
Taxpayers who already received penalty relief through an existing IRS program should still ask whether Kwong reaches something that program did not cover. None of this points to an automatic outcome. It points to a question worth asking with real numbers in front of you.
The Appeal Still Looms
Kwong is a Court of Federal Claims decision, not a final word from the Federal Circuit or the Supreme Court, and that appeal is expected to take years to resolve. The IRS is not currently issuing refunds based on this ruling, and nothing about filing a claim guarantees the agency will pay it. Anyone discussing potential refunds right now is talking about preserving a position, not collecting a check, since taxpayer rights and remedies under Kwong stay unsettled until the appeal resolves.
That uncertainty is exactly why the statute of limitations matters so much. Because Kwong treats the disaster period as extending deadlines to July 10, 2023, the window for filing a refund claim tied to many of these obligations closes on July 10, 2026. Taxpayers who decide to act typically do so by filing the applicable IRS claim form, though the procedural details of that filing are a separate conversation. The deadline keeps running whether or not the appeal has been decided by then. Missing it closes the door regardless of how the litigation eventually ends.
Talk to Hall Lundstedt Today
Hall Lundstedt has spent more than two decades on tax controversy matters and tax advisory work for businesses, individuals, and the professionals who advise them, and the Kwong decision is exactly the kind of issue where Big Four-level analysis paired with small-firm attention earns its keep. We are not telling every client to file a claim. We look at the actual numbers, dates, and filing history before recommending anything.
If you paid penalties or interest on a federal tax obligation due during the COVID disaster period, or if you advise clients who did, reach out to discuss whether a closer review is worth your time before the July 10, 2026, deadline. Call us at (918) 582-9205 or email info@hall-lundstedt.com to schedule a conversation.
Frequently Asked Questions
Who is affected by the Kwong decision?
Anyone, individual or business, who paid failure-to-file penalties, failure-to-pay penalties, or underpayment interest on a federal tax obligation due between January 20, 2020, and July 10, 2023, may be affected. Tax professionals managing client files from that period are affected as well, since the ruling raises questions about ongoing compliance review.
Does the Kwong ruling apply to businesses?
Yes. Corporate taxpayers, partnerships, S corporations, limited liability companies, sole proprietors, and other business taxpayers with filing or payment deadlines inside the covered period may have grounds to question penalties and interest assessed at that time.
Does the Kwong decision affect individual taxpayers?
In some cases, yes. Individual taxpayers who filed late, paid late, or missed estimated tax payments between January 2020 and mid-2023 may have accrued charges that, under the reasoning many practitioners draw from Kwong, the IRS lacked authority to impose in the first place.
How does the Kwong ruling affect tax professionals?
Mainly by raising a compliance review question rather than an automatic obligation. CPAs, enrolled agents, and tax attorneys are generally expected to be aware of the decision, raise it with clients who may be affected, and help evaluate whether a transcript review makes sense given the client's specific facts.
Is a refund guaranteed under the Kwong decision?
No. The decision is being appealed, and the IRS is not currently issuing refunds based on it. Filing a claim preserves a taxpayer's position. It does not guarantee payment, and taxpayers should be cautious of anyone who suggests otherwise.
What is the deadline to act on a potential Kwong refund?
For most taxpayers, the deadline to file a refund claim related to this issue is July 10, 2026. The applicable deadline can shift based on filing and payment dates, as well as prior IRS action, so it is worth confirming your specific timeline rather than assuming the general rule applies to your situation.
Which taxpayers may be impacted by Kwong?
The taxpayers most likely to be impacted are those with a meaningful amount of penalties or interest tied to a return or payment that fell within the disaster window, regardless of whether they filed as an individual, a business, or through an estate or trust. Entity type matters less here than the size of the assessment and the specific dates involved.
What role does Internal Revenue Code Section 7508A(d) play in the Kwong decision?
Section 7508A(d) is the disaster relief provision at the center of Kwong. It postpones federal tax deadlines for the duration of a federally declared disaster, plus 60 days. The court in Kwong read it as extending one taxpayer's deadline to file suit for the full length of the COVID-19 disaster period, and practitioners are now arguing the same provision should extend just as far to penalty and interest accrual generally, though that broader question has not been decided.