At Sullivan & Company, we often remind our clients that tax deadlines and IRS assessments are governed by strict legal codes, yet interpretations of those codes can—and do—change. A recent decision by the U.S. Court of Federal Claims, Kwong v. United States, challenges the IRS’s handling of filing deadlines during the COVID-19 pandemic. For high-net-worth individuals and estates that incurred significant penalties during this period, this ruling offers a crucial opportunity to potentially recover those funds.

Deconstructing the Kwong Decision

The central issue in Kwong revolves around Internal Revenue Code Section 7508A(d). The court ruled that this statute mandated an automatic extension of tax deadlines during a federally declared disaster. While the IRS previously operated under the assumption that these extensions were discretionary and limited in duration, the court found that during the COVID-19 pandemic, the mandatory extension period legally spanned from January 20, 2020, to July 10, 2023.

This effectively rejects the IRS stance that extensions were limited to one year. The implication is significant: filing or payment deadlines were legally moved to July 10, 2023. Consequently, “failure-to-file” or “failure-to-pay” penalties assessed against taxpayers between 2020 and 2023 may have been invalid.

Strategic Steps to Preserve Your Rights

In the world of forensic accounting and tax controversy, timing is everything. While the government may appeal this decision, sitting on the sidelines could result in a missed opportunity due to the statute of limitations. We recommend a proactive approach to safeguard your potential refund.

1. Conduct a Forensic Review of Transcripts

The first step is to verify if you were assessed penalties or interest for deadlines falling within the January 20, 2020, to July 10, 2023 window. You should review your Account Transcripts for the relevant years.

You can obtain these transcripts via the Get Transcript tool on IRS.gov, by filing Form 4506-T, or by calling 800-908-9946. For our clients, we can handle this review internally to identify specific penalty assessments that qualify under the Kwong ruling.

2. File a Protective Claim

Because legal appeals can drag on for years, it is critical to file a “protective claim.” This essentially acts as a placeholder, stopping the clock on the statute of limitations while the courts finalize the legal precedent.

To do this, taxpayers should file a Claim for Refund and Request for Abatement on Form 843. This formalizes your request to recover penalties and interest based on the Kwong decision, ensuring you are in line for a refund if the ruling holds, regardless of how long the appeal process takes.

3. Leverage Abatement Protocols

If you currently have outstanding penalties from this period, this ruling can be cited as justification for abatement. Additionally, looking ahead to 2026, the IRS is moving toward automating First-Time Abatement (FTA) for eligible taxpayers, which provides a secondary layer of relief options.

Deadlines Matter

The ruling indicates that claims for refunds related to this specific decision generally must be filed within three years of the recognized deadline. Based on the court’s date of July 10, 2023, the deadline to submit your protective claims is July 10, 2026.

Advisory Guidance

Navigating tax controversy requires a clear head and a defensible strategy. If you or your estate paid substantial penalties during the pandemic era, do not assume those assessments are final. We advise reviewing your records immediately.

If the amounts warrant action, contact Sullivan & Company. We can assist in preparing the necessary protective claims to ensure your wealth is preserved and your rights are enforced.