Taxpayer Prevails in Dispute With IRS Over Covid-Related Extension of Refund Deadline

(Parker Tax Publishing December 2025)

The Court of Federal Claims held that a taxpayer's lawsuit for a refund of penalties, which was filed more than two years after the IRS denied the taxpayer's requests for abatement, was nonetheless timely filed because the filing deadline was extended by Code Sec. 7508A as in effect for 2019. The court found that under the plain meaning of the 2019 version of the statute, the automatic extension ran from the beginning of the disaster declaration on January 20, 2020, through the end of the declared disaster period (May 11, 2023), and until 60 days after the end of the declared disaster period (July 10, 2023). Kwong v. U.S., 2025 PTC 387 (Fed. Cl. 2025).

Background

Terry Kwong was a co-owner of a business that owns and manages real estate. In 2005, Kwong bought his co-owners' shares and became the sole owner of the business. As part of that transaction, Kwong refinanced the business's property. On the advice of his attorney and accountant, Kwong claimed a loss of $2,315,017 from the transaction on his 2005 tax return and carried that loss forward, including to the 2007, 2010, and 2011 tax years. The IRS audited Kwong's 2005 tax return and disallowed the loss in 2012, resulting in additional tax liabilities for the tax years to which he had applied the loss. At the same time, the IRS assessed delinquency penalties for those tax years.

In 2015, Kwong had a tax liability of $426,756, but he withheld only $6,719 over the course of the tax year. The IRS assessed penalties for his failure to withhold enough money. Later, Kwong negotiated an abatement of those penalties. After the abatement, Kwong owed a total penalty of $4,563 for tax year 2015. In 2016, Kwong had tax liabilities of $88,164 but withheld only $6,684. Before filing his tax return for 2016, Kwong made an estimated payment of $400,000 to the IRS. Kwong's 2016 tax return then requested that the amount that was an overpayment be applied forward to his 2017 taxes. The IRS assessed $1,929 in penalties for tax year 2016 for Kwong's under-withholding. Thus, an overpayment of $316,590.02 remained. Rather than applying that amount to Kwong's 2017 taxes, the IRS transferred it to cover Kwong's outstanding balance from tax year 2007.

In 2020, Kwong filed requests for abatement, seeking refunds for the penalties he had paid for each of the 2007, 2010, 2011, 2015, and 2016 tax years. Later that year, in September and October 2020, the IRS issued notices of disallowance for Kwong's 2007, 2010, and 2011 claims. As of when Kwong filed suit, the IRS had not acted on Kwong's 2015 or 2016 claims. In February 2023, Kwong filed a complaint in the Court of Federal Claims seeking refunds of the penalties for all five tax years. The government moved for summary judgment, arguing that Kwong's 2007, 2010, and 2011 claims were untimely, and that the IRS appropriately assessed penalties for 2015 and 2016.

Under Code Sec. 6532, a lawsuit for a refund of taxes or penalties must be filed no later than two years after the date the IRS mails the disallowance of the taxpayer's refund request. Kwong's lawsuit was filed about two years and three months after the IRS rejected his requests for abatement. However, Kwong contended that the filing deadline was statutorily tolled by Code Sec. 7508A, which was amended in 2019 as part of the emergency relief enacted during the covid-19 pandemic.

Code Sec. 7508A allows the Secretary of the Treasury to postpone a taxpayer's deadline to file his taxes, usually during a period of a natural disaster. At all relevant times Code Sec. 7508A(a) stated that the Secretary may "specify a period of up to 1 year that may be disregarded" during a taxpayer's two-year window to bring suit for a tax credit or refund. In Code Sec. 7508A(d), the statute also includes a "mandatory" extension for any qualified taxpayer in a declared disaster area. Under the 2019 version, the period of automatic extension ran from "the earliest incident date specified in the declaration" to "the date which is 60 days after the latest incident date so specified." In 2021, Congress amended the automatic extension of Code Sec. 7508A, changing the end of the period from "the date which is 60 days after the latest incident date so specified," to "the date which is 60 days after the later of such earliest incident date ... or the date such declaration was issued." Thus, the automatic extension, on its face, went from an unlimited period, as long as the disaster was ongoing, to a maximum of 60 days.

Observation: The Filing Relief for Natural Disasters Act (Pub. L. 119-29), enacted on July 24, 2025, again amended the mandatory extension deadline in Code Sec. 7508A, extending it from 60 days to 120 days. This amendment applies to declarations made after the date of enactment.

On March 13, 2020, the president declared a nationwide emergency, and on March 22 he declared a major disaster area in California "beginning on January 20, 2020, and continuing," due to pandemic conditions. The pandemic emergency declaration was later amended to end on May 11, 2023. Kwong argued that his deadline was postponed under the 2019 version of Code Sec. 7508A(d) until July 10, 2023 - 60 days after the May 11, 2023, covid emergency declaration in California (where he resided) was over. According to Kwong, because his time to file suit began in September or October 2020 (depending on the tax year) and was extended until at least July 2023, and he filed in February 2023, his suit was timely.

The government responded that, because the emergency declaration did not initially include a specific end date, the statute did not apply to extend the postponement period as long as Kwong needed. The government reasoned that the date in the initial emergency declaration was both the earliest and latest incident date "specified" for purposes of Code Sec. 7508A. According to the government, because the initial pandemic emergency declaration was "beginning on January 20, 2020, and continuing," only the January date was "specified." The government further argued that in Reg. Sec. 301.7508A-1(g)(3)(ii), the IRS interpreted the 2019 version of Code Sec. 7508A not to extend the automatic extension indefinitely. Specifically, the regulation states that "[i]n no event will the mandatory 60-day postponement period [under subsection (d)] be calculated to exceed one year." In addition, the government contended that because Code Sec. 7508A(d) stated that the mandatory period "shall be disregarded in the same manner as a period specified under subsection (a)," the extension under (d) could be no longer than the extension available under Code Sec. 7508A(a).

Analysis

The Court of Federal Claims held that Kwong's suit for years 2007, 2010, and 2011 was timely. The court found that under the 2019 version of Code Sec. 7508A, the mandatory extension period began on January 20, 2020, and ended on July 10, 2023 - 60 days after the emergency declaration's latest incident date. Thus, Kwong had until at least July 10, 2023, to file his lawsuit.

The court interpreted the text of the 2019 version of Code Sec. 7508A(d) to allow the period of automatic extension to run from "the earliest incident date" of the disaster declaration to "60 days after the latest incident date." The plain meaning of the statute, in the court's view, was that the automatic extension ran from the beginning of the disaster declaration, through the end of the declared disaster period, and until 60 days after the end of the declared disaster period. The court observed that a disaster declaration lasting more than three years was unprecedented but reasoned that, even if Congress did not anticipate a disaster declaration lasting that long, the statute's express text nevertheless applied.

The court was unpersuaded by the government's argument that only the earliest incident date was specified in the initial emergency declaration. The court reasoned that if the emergency declaration was intended to include only January 20, 2020, the declaration would not have also said, "and continuing." In addition, the court noted that the 2021 amendment to Code Sec. 7508A(d) altered the mandatory extension, such that it would end on the later of 60 days after the earliest incident date or the date the declaration was issued. The change in statutory text ensured that a mandatory 60-day extension was tacked on after a single date rather than after the last day of a multiday (or multi-year) disaster declaration. Congress thus changed the statute to no longer have an indefinite automatic extension when a disaster lasts a long time. This amendment implied, in the court's view, that Congress intended to change the statute's meaning; otherwise, it could have left the statute's text as it was.

The court also found that the IRS's reading of the statute in Reg. Sec. 301.7508A-1(g)(3)(ii) was not dispositive, since under Loper Bright Enterprises v. Raimondo, 2024 PTC 237 (S. Ct. 2024), courts are required to exercise their independent judgment in deciding whether an agency has acted within its statutory authority. The regulation, the court said, appeared to misread the statute by limiting the mandatory extension time described in Code Sec. 7508A(d) by the general one-year provision in Code Sec. 7508A(a). The court found that the statute was not ambiguous, at least for purposes of the timing question in this case.

The court also held that Kwong's challenge to the transfer of his 2016 overpayment to 2007 was untimely under Code Sec. 6511(a), which provides that a refund request must be made, at the lates, two years from the time the tax was paid. The court found that the IRS made the transfer at the latest in November 2017 and thus Kwong needed to file a refund request by November 2019. In addition, the court rejected Kwong's challenges to the penalties assessed for 2015 and 2016 after finding that he abandoned his claim for 2015 and failed to demonstrate reasonable cause for 2016.

For a discussion of covid-related postponements of filing deadlines, see Parker Tax ¶79,360.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com

We hope you find our professional tax research articles comprehensive and informative. Parker Tax Pro Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.

Try Our Easy, Powerful Search Engine

A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play

Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.

Dear Tax Professional,

My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.

Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.

To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.

Our product, the Parker Tax Pro Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.

Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!

Sincerely,

James Levey

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com