IRS Refund Applications in Response to Kwong v. United States
In Kwong v. United States, the U.S. Court of Federal Claims addressed whether a taxpayer’s lawsuit against the Internal Revenue Service (“IRS”) was timely after the IRS denied the taxpayer’s refund claim for penalties paid in 2007, 2010, 2011, 2015, and 2016. The Taxpayer filed his refund application in early 2020 and the IRS’s denial came in September and October of 2020. Afterwards, the Taxpayer did not file his complaint challenging the IRS’s denial until February 2023. Ordinarily, a taxpayer is granted two years from the date their refund application was denied to a bring a lawsuit. In this case, the taxpayer’s complaint was brought two years and three months after the denial of taxpayer’s refund application.
In response to the Taxpayer’s complaint, the IRS filed a summary judgment motion to dispose of the case as it believed that the taxpayer’s lawsuit was tolled under 26 U.S. § 6532 since the lawsuit since more than two years had passed. However, the taxpayer argued that due to the Covid-19 Disaster Declaration, enacted by the President on March 13, 2020, the deadline to file his complaint was tolled until 60 days after the Disaster had ended. The Covid-19 Disaster did not officially end until May 11, 2023. As a result, Taxpayer argued he had until July 10, 2023, to file his complaint.[1]
The court agreed with the taxpayer and held that, because the time to file suit began in September and October 2020, the Covid-19 disaster declaration and 26 U.S.C. 7508A suspended his filing deadline until at least July 2023. Because the taxpayer filed his complaint in May 2023, the action was timely.
Underlying the ruling is that penalties and interest assessed for the late filing of tax returns, and late payments made during the Disaster Declaration may have been improperly applied. This is because those filing/payments were not actually considered “late” and thus the assessment of penalties and interest were not appropriate. As a result, thousands of taxpayers may be entitled to a refund. However, each case is different and contains separate procedural hurdles. The Kwong Decision has also been appealed by the government, thus, its status is contingent on the outcome at the appeals court.
In the meantime, the government has extended the deadline to July 10, 2026, for taxpayers seeking refunds of penalties and interest that may have been improperly assessed during the Covid-19 disaster. Our firm is accepting matters on behalf of taxpayers who wish to pursue those refund claims. If you are unsure whether you may qualify for relief, please contact William Dungey III or Doug Madanick to discuss your options. If you do not file by July 10, 2026, your refund eligibility will be foreclosed. Our firm urges you to at least seek advice regarding whether you were improperly assessed penalties and interest.
[1] The statute authorizing postponement of a taxpayer’s filing requirements during a federal declared disaster is found under 26 U.S.C. 7508A, which, at the time, postponed filing requirements until 60 days after the latest incident date.