Background: The Kwong Decision

On November 25, 2025, the United States Court of Federal Claims found in favor of the plaintiff in the case Kwong v. United States, No. 23-267 (Fed. Cl. Nov. 25, 2025). Kwong (the plaintiff) argued that the tax deadlines during the period of the COVID-19 pandemic (January 20, 2020 – May 11, 2023) were postponed to July 10, 2023 (60 days after the last day of the pandemic) based on an interpretation of IRC Section 7508A(d) as it existed when the pandemic was first declared.

Kwong argued that the IRS should not have assessed late-payment penalties or accrued interest for any late payments during the pandemic. Also, this means the IRS should not have continued to calculate accrued interest or late payment penalties on any balances due before the start of the pandemic. Essentially, the “clock should have stopped” from January 20, 2020, to July 10, 2023, for certain tax obligations and related interest and penalties based on Kwong’s interpretation of IRC Section 7508A(d). The IRS disagreed and said that payment obligations for penalties and interest during the pandemic years were not postponed till July 10, 2023, and interpreted the statute in question more narrowly.

The decision is not final. On May 15th, the IRS announced that it and the Department of Justice filed an appeal with the US Court of Appeals. It may take the courts years to resolve the case. However, there are still concrete steps taxpayers can take to potentially secure a refund if the courts ultimately rule in favor of Kwong.

Interest and Penalties During the COVID-19 Pandemic

For tax years 2019 – 2022 (and potentially earlier), a refund of the following amounts is being argued in the Kwong decision:

• Penalties assessed & interest accrued on any tax liabilities during these years, or
• Interest continues to accrue on a tax obligation that originated before January 20, 2020
• Interest and penalties related to an audit during the pandemic period

Any taxpayers who paid interest or penalties related to any of these situations should pay the closest attention to the Kwong decision.

Claim for a Refund – Time Sensitive

Normally, to receive a refund of interest and penalties that a taxpayer believes were paid in error, taxpayers can file a claim for a refund with the IRS. The claim for a refund requires the details and reason for the overpayment and a written statement saying you are making the claim under penalties of perjury. Submitting Form 843 will satisfy these two requirements. In general, you must file a claim for a refund “within 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later”. Because the Kwong decision effectively postponed many deadlines to July 10, 2023, in most situations, this gives taxpayers until July 10, 2026 (three years after July 10, 2023) to file a claim for refund related to pandemic‑period interest and penalties. However, the actual deadline for any particular taxpayer still depends on their specific filing and payment dates, so each situation must be evaluated individually. Since a final decision has not been reached in Kwong v. United States, these refund claims should generally be filed as protective claims.

Filing a Protective Claim

A protective claim is a taxpayer’s way of applying for a refund claim before a final decision has been made by the courts about a tax matter. Per the IRS’s Internal Revenue Manual (IRM) procedures regarding protective claims, a taxpayer does not need to calculate the exact amount they believe they should receive as a refund. However, the claim must identify and describe the contingency, which in this case would be a favorable interpretation of the tax law after a final court decision in the Kwong Case. Also, the claim must clearly communicate to the IRS the nature of the refund request and list the specific tax year(s) related to the claimed refunds.

Protective claims are an excellent tool that taxpayers can utilize as they stop the statute of limitations from running out while a tax matter is being resolved, but there are some practical challenges to this unique tax situation.

Practical Challenges

Generally, the law requires taxpayers to file claims to receive refunds, so if the courts rule in favor of the taxpayer with the Kwong Decision, taxpayers may not be able to benefit from that outcome unless they file a protective claim before July 10, 2026. Filing a protective claim before July 10, 2026, does not ensure a refund but only gives you the opportunity for the IRS to review your case and grant a refund if the Kwong decision is ultimately ruled in favor of the taxpayer.

Normally, filing Form 843 for a protective claim cannot be done electronically and must be physically mailed to the IRS. According to the National Taxpayer Advocate (NTA), tens of millions of taxpayers could be affected by the outcome of this case, and millions may send protective claims related to the Kwong Decision. This number is massive, and the IRS’s ability to process all these paper claims is doubtful.

If a taxpayer chooses to send a refund claim by mail, certified mail will be the best way to track and guarantee that the IRS has received your claim; however, taxpayers may want to wait for a more expedient solution to be developed. The National Taxpayer Advocate (NTA), an independent organization within the IRS that strives to ensure fair treatment of taxpayers, is urging the IRS to do a couple of things to help avoid this potential administrative morass.

The NTA is urging the IRS to:

1. Publicize the issue more widely so taxpayers have the information they need to make an informed decision.
2. Provide taxpayers with an extra six-month extension to file refund claims.
3. Consider providing relief to all eligible taxpayers without requiring them to file refund claims.
4. Create an electronic portal or mailbox where taxpayers can submit protective claims related to the Kwong case.

Ultimately, if the IRS adopts the NTA’s recommendations to provide systemic relief or to create an electronic portal for Kwong‑related claims, mailing paper protective claims may become less important or may be superseded by a more efficient process. Until further guidance is issued, taxpayers and advisors will need to balance the desire to wait for a potentially easier process against the risk of delaying too long and missing applicable refund‑claim deadlines.

Conclusion

It will probably take several years before a final decision is reached, but depending on the amount of penalties and interest you paid during the pandemic, taking the time to file a protective claim could mean a significant refund.