Court Rulings Extend COVID-Era Tax Relief, Challenging IRS Interpretation

WASHINGTON — A series of federal court decisions, most notably in the case of Kwong v. United States, has established a broad interpretation of COVID-era tax relief that directly challenges the Internal Revenue Service's narrower stance, potentially extending critical deadlines for tax refund claims to as late as July 10, 2026.

The rulings center on Section 7508A of the tax code, which grants the Treasury Secretary authority to postpone tax-related deadlines for taxpayers affected by a federally declared disaster. Following President Donald Trump’s March 13, 2020, national emergency declaration for the COVID-19 pandemic, the IRS issued guidance postponing certain deadlines. However, the agency has consistently argued that this relief only applied to specific deadlines that fell within the disaster period. Recent court findings have instead supported a much more expansive view, asserting that the law requires the entire disaster period — from January 20, 2020, to July 10, 2023 — to be disregarded when calculating statutes of limitations.

This distinction between a simple postponement and a statutory “tolling,” where the clock on a deadline is paused, is critical. The IRS’s interpretation would mean many deadlines have long passed. The courts’ interpretation, however, effectively freezes these deadlines for nearly three and a half years, giving many businesses and individuals a second chance to file refund claims or contest penalties.

In our experience, many business owners reasonably assumed that the tax deadlines announced by the IRS during the pandemic were the final word. This recent judicial trend shows that the statutory relief Congress provided was far more extensive than what the agency implemented through its notices. It creates a significant, if complex, opportunity for companies to re-examine their tax filings from 2019 through 2021 for missed refund opportunities they believed were lost to expired deadlines.

The pivotal case clarifying this issue is Kwong v. United States from the U.S. Court of Federal Claims. The taxpayer in the case had several refund claims denied by the IRS in the fall of 2020, which would normally start a two-year clock to file a lawsuit. The suit was not filed until February 2023, seemingly well after the deadline. The government moved to dismiss the case as untimely. The court, however, denied the government's motion, holding that Section 7508A(d) required the entire COVID-19 disaster period to be disregarded. This period was determined to have started on January 20, 2020, the earliest incident date declared by a state, and ended on July 10, 2023, which is 60 days after the Federal Emergency Management Agency (FEMA) declared the incident period over on May 11, 2023.

This ruling effectively paused the two-year statute of limitations, making the taxpayer's 2023 lawsuit timely. The decision aligns with earlier rulings, such as in Abdo v. Commissioner, and a recent stipulated decision in Mayronne v. Commissioner, which disallowed statutory interest through July 10, 2023. Together, these cases signal a judicial reluctance to accept the IRS’s efforts to narrow the scope of congressionally mandated disaster relief.

The implications for small and mid-sized businesses are substantial. The court's interpretation of Section 7508A(d) as a tolling provision means the statute of limitations for filing many refund claims may be extended. For example, a claim for a 2019 return originally due in 2020 might now be considered timely if filed by July 10, 2026 — three years after the end of the disregarded period. This opens the door for businesses to file amended returns or pursue claims for overpayments, credits, or deductions they previously thought were time-barred. The relief also extends to the abatement of interest and penalties that may have been improperly assessed or accrued during the 3.5-year disaster window.

The distinction between “postponement” and “tolling” is not just legal semantics; it has direct financial consequences for businesses that faced unprecedented disruption. This is precisely the kind of intricate situation where professional guidance is essential, as pursuing these claims requires a firm understanding of the case law that contradicts the IRS's public position. For businesses needing to navigate these complex claims, the tax preparation and compliance team at C&S Finance Group LLC at csfinancegroup.com provides the necessary expertise to assess eligibility and preserve rights before new deadlines expire.

Despite the growing body of case law favoring taxpayers, the IRS has not officially changed its position. The Kwong decision is currently binding only within the Court of Federal Claims, and the IRS may continue to contest this interpretation in other jurisdictions. This means businesses seeking to take advantage of this extended timeline may need to be prepared to proactively file claims and potentially defend their position against an IRS challenge. Taxpayers are advised to promptly evaluate potential claims to ensure any available opportunities are identified and preserved.

Moving forward, businesses and tax professionals will be closely watching for the IRS’s response to these judicial setbacks. The key question is whether the agency will issue new, broader guidance that aligns with the courts' interpretation or if it will continue to litigate the issue on a case-by-case basis. In the meantime, the July 10, 2026, date looms as a critical deadline for action on many potential COVID-era refund claims.