Kwong v. United States Penalty Refunds After the July 10, 2026 Deadline.

A business owner who has been paying down a 2020 balance on an installment agreement since 2023 heard about Kwong v. United States in August, after the July 10, 2026 deadline everyone was quoting had passed. Is the refund gone? Not all of it. July 10 closed the three-year window for most Kwong v. United States penalty refunds, but the refund statute also gives you two years from the date you paid. Any COVID-era penalty or interest that left your account in the last two years can still go on a Form 843.

The Department of Justice filed its notice of appeal to the U.S. Court of Appeals for the Federal Circuit on May 15, 2026, and the government's opening brief was due July 20, 2026. As of early October 2026 the Federal Circuit hasn't ruled, and appeals like this one routinely take a year or more.

The IRS has also put its position in writing. In AOD 2026-01, published in Internal Revenue Bulletin 2026-23, the IRS acquiesced in result only to Abdo v. Commissioner, 162 T.C. 148 (2024), the Tax Court case that first read §7508A(d) as mandatory. It accepts a 60-day postponement from January 20, 2020 to March 20, 2020 and nothing longer. It does not accept the 3.5-year window Kwong found. Meanwhile Wepplo v. Commissioner, Tax Court Docket No. 36722-21, asks whether interest has to ignore January 20, 2020 through July 10, 2023, and the Tax Court has invited amicus briefs because of how many taxpayers it could reach. The practical read: the IRS will not pay Kwong claims on its own. Whether yours pays depends on the appeal.

On November 25, 2025, Judge Molly Silfen of the U.S. Court of Federal Claims issued the opinion in Kwong v. United States, 179 Fed. Cl. 382. The case turned on IRC §7508A(d), a 2019 statute that requires the Treasury Secretary to postpone certain federal tax deadlines during a federally declared disaster for the length of the incident period, plus an additional 60 days. The court held that the postponement is mandatory and self-executing. It does not require the IRS to issue a notice, and it cannot be shortened by regulation.

The court invalidated 26 C.F.R. §301.7508A-1(g)(3)(ii), the Treasury regulation that capped the mandatory §7508A(d) extension at one year. The statute, the court said, controls. A regulation cannot shrink what Congress wrote. Applied to the COVID-19 emergency, the FEMA-declared incident period ran from January 20, 2020 to May 11, 2023. Add the statutory 60 days, and the postponement period covered by §7508A(d) stretches all the way to July 10, 2023.

The practical implication is what makes Kwong matter. If every federal tax deadline falling between January 20, 2020 and July 10, 2023 was automatically postponed to July 10, 2023, then a return filed any time before that date was not late, and a payment made any time before that date was not late either. Failure-to-file penalties under §6651(a)(1), failure-to-pay penalties under §6651(a)(2), estimated-tax penalties under §6654 for individuals and §6655 for corporations, and underpayment interest under §6601 should not have started running during the postponement period at all.

This is not reasonable-cause abatement under §6651(a). It is not first-time abatement under the IRS's administrative policy in IRM 20.1.1.3.6.1. Both of those are discretionary, fact-specific, and frequently denied. The Kwong claim is different. It is a refund claim built on the position that the underlying penalty was never validly assessed in the first place, because the statutory due date had not yet arrived when the IRS started its clock.

Returns most likely affected are individual 1040s for tax years 2019 through 2022, partnership 1065s with late-filing penalties under §6698, S-corporation 1120-S returns with late-filing penalties under §6699, C-corporation 1120s, and the gift, estate, and trust returns whose original due dates fell inside the window. Households with a major real estate, equity, or business event during the pandemic are the ones most likely to have triggered the penalties this ruling addresses. Many of the high-income households I work with on real estate strategies had estimated-tax shortfalls during 2020 and 2021 when rental income, K-1s, and cost-seg timing all moved at once, and the §6654 penalties on those years are exactly the kind of assessment Kwong puts back on the table.

Under IRC §6511, a refund claim has to be filed within three years from the time the return was filed, or two years from the time the tax was paid, whichever is later. July 10, 2026 was the three-year date measured from the end of the §7508A(d) postponement period, July 10, 2023, and the National Taxpayer Advocate pushed it hard in an April 2026 NTA Blog post. If you paid everything before October 2024 and didn't file by July 10, that money is out of reach no matter how the appeal ends.

The two-year rule is the window still open, and it runs payment by payment. A claim filed in October 2026 reaches penalty and interest paid from October 2024 forward, and §6511(b)(2)(B) caps the refund at what you paid in those two years. That catches installment agreements still paying down a 2020 through 2022 balance, and anyone who cleared an old COVID-era balance in late 2024 or 2025. Each payment ages out two years after the day it posted, so the claim is worth more the sooner it goes in.

Two smaller cases are worth checking. If you filed the return itself late, after October 2023, three years from the date you actually filed may not have run yet. And if the penalty or interest is still sitting on your account unpaid, there is nothing to refund: you request abatement on Form 843 instead, and expect the IRS to hold or deny it under AOD 2026-01 while the appeal runs.

If you did file by July 10, watch the mail. A claim the IRS denies doesn't end the matter. Under §6532(a), you have two years from the date of a notice of disallowance to file suit in district court or the Court of Federal Claims, and that is the next deadline that can quietly lapse.

Form 843 is short. Two pages. Identify the tax period, the type of tax (income, employment, etc.), the type of penalty by Internal Revenue Code section, and the dollar amount being claimed. On Line 7, explain the basis. The version I have been using reads, in substance, that the penalty and interest at issue accrued during the §7508A(d) postponement period from January 20, 2020 through July 10, 2023, that under the holding in Kwong v. United States, 179 Fed. Cl. 382 (Nov. 25, 2025), the assessment was premature, and that the claim is filed as a protective claim under §6511 pending final resolution of the appeal. The IRS asks that Kwong claims say "Kwong v. United States" across the top, and adding "Protective Claim" makes the position clear while the appeal is pending.

File a separate Form 843 for each tax year and each type of tax. Individuals with an IRS Online Account can submit a Kwong claim for fully paid penalties and interest electronically through the IRS's Form 843 page for Kwong claims. Businesses, and anyone not filing online, mail the paper form to the IRS service center where you would file your current-year return for the type of tax involved. Keep the original IRS notice that assessed the penalty (the CP14, CP161, CP504, or whichever applied), the bank or canceled-check record showing the penalty was actually paid, and a copy of the return that triggered the assessment. The IRS cannot refund a penalty that was never paid, so the strongest claims are the ones where the dollars already left the taxpayer's account.

Accuracy-related penalties under §6662, civil fraud penalties under §6663, and information-return penalties under §6721 and §6722 are not tied to a missed due date, and Kwong does not directly reach them. The §6698 partnership and §6699 S-corp late-filing penalties are tied to the due date, so those are squarely in scope. Kwong is also a federal decision. State penalties are governed by separate state statutes. Utah's late-filing and late-payment penalties under Utah Code §59-1-401 do not move because of a federal court ruling, and the same is true in California, New York, and every other state. States that automatically conform to federal due dates may have a parallel argument, but each one stands on its own statute.