COVID-19 Era Tax Relief: Could Millions of Taxpayers Be Entitled to Refunds of IRS Penalties and Interest?

By Zaher Fallahi, Attorney at Law & Certified Public Accountant (CPA)

Important Notice

The discussion below concerns a recent federal court decision and related commentary regarding the potential application of Internal Revenue Code Section 7508A during the COVID-19 federal disaster period. The legal issues remain subject to further judicial review and possible appellate proceedings. Taxpayers should not assume that any penalty, interest, or tax assessment automatically qualifies for refund, abatement, or other relief.

The applicability of the decision depends upon the specific facts, procedural posture, tax periods involved, assessment history, and other legal considerations unique to each taxpayer.

A recent federal court decision, Kwong v. United States, has generated significant discussion among tax professionals and may create substantial refund opportunities for taxpayers who incurred IRS penalties and interest during the COVID-19 federal disaster period.

The case involves the interpretation of Internal Revenue Code Section 7508A, which authorizes the postponement of certain tax-related deadlines during federally declared disasters. The court concluded that the statutory postponement period may have extended throughout the COVID-19 federal disaster declaration, plus an additional sixty days thereafter.

Under the court’s analysis, certain federal tax filing and payment obligations that arose during the COVID-19 disaster period may not have been considered delinquent until after July 10, 2023. If that interpretation ultimately survives further judicial review, many taxpayers may be entitled to seek refunds or abatements of penalties and interest that were assessed during the affected period.

Potentially affected taxpayers may include individuals, businesses, estates, trusts, and other entities that incurred failure-to-file penalties, failure-to-pay penalties, estimated tax penalties, and related interest charges. Depending upon the facts, the amounts involved could be significant.

However, taxpayers should not assume that refunds will be issued automatically. Equally important, statutes of limitation may continue to run. In certain situations, protective refund claims may be necessary to preserve potential rights while the legal issues continue to develop.

One reason this November 2025 decision is receiving increased attention in 2026 is that refund claim deadlines may soon begin expiring for some taxpayers.

As a result, tax practitioners, CPAs, enrolled agents, and tax controversy attorneys throughout the country are actively evaluating whether the reasoning of Kwong may affect pending IRS matters, refund claims, collection cases, and other tax controversies should the decision ultimately become controlling authority.

The potential implications extend beyond merely obtaining refunds.

The decision may affect collection matters, installment agreements, penalty computations, interest assessments, and other aspects of tax administration for taxpayers whose obligations arose during the COVID-19 federal disaster period.

Taxpayers interested in evaluating the possible impact of Kwong should consider obtaining and reviewing their IRS account transcripts, assessment histories, notices, and related records. The applicability of the decision may vary considerably depending on the years involved, the nature of the assessments, procedural requirements, and future developments in the litigation.

Tax attorneys, including this counsel, who have pending IRS controversy matters that may be impacted by the decision are closely evaluating its potential application should the case survive appellate review.

This article discusses issues raised by the National Taxpayer Advocate’s June 2026 commentary regarding the Kwong decision and provides independent legal analysis by Zaher Fallahi, Attorney at Law & CPA.

Future Developments May Affect This Analysis​:

The issues discussed herein remain subject to further litigation, appellate review, administrative guidance, and potential legislative action. Accordingly, the conclusions discussed in this article may change as additional authorities become available.

Professional Disclaimer​:

This article is provided solely for general educational and informational purposes. It does not constitute legal advice, tax advice, accounting advice, or a legal opinion regarding any specific taxpayer, transaction, or controversy matter. Readers should consult qualified legal and tax professionals regarding their individual circumstances before taking or refraining from any action.

No Attorney-Client Relationship​:

Viewing this article, communicating with the author, or submitting information through this website does not create an attorney-client relationship, CPA-client relationship, or any duty of representation. A professional relationship is established only through a written engagement agreement signed by all required parties.

Independent Analysis​:

The views expressed herein are solely those of the author and should not be construed as representing the views of any governmental agency, court, professional organization, or other third party.

As of the date of publication, counsel is not aware of any final appellate decision altering the analysis discussed herein.  

© 2026 Zaher Fallahi, Attorney at Law & Certified Public Accountant. All rights reserved.