Strategic Protective Refund Approach

In Kwong v. United States, 179 Fed. Cl. 382 (2025), the United States Court of Federal Claims held that Section 7508A(d) provided a mandatory extension of certain federal tax timing rules during the entire COVID-19 national disaster period plus an additional 60 days.

The court concluded that the COVID-19 disaster period extended from January 20, 2020, through May 11, 2023, with the additional 60-day statutory extension carrying the covered period through July 10, 2023. Importantly, the court rejected the government’s regulatory position seeking to limit the application of the mandatory extension, thereby calling into question the government’s ability to narrow the application of the mandatory extension through interpretative authority.

While the case directly involved the deadline for filing a refund suit, the court’s reasoning potentially reaches much further. The opinion suggests that numerous federal tax timing provisions may have been suspended during the COVID-19 disaster period, including:

• Statutes of limitation for refund claims and refund suits
• Filing and payment deadlines
• Interest and penalty computations
• Refund lookback periods under Section 6511
• Potential overpayment interest calculations

The Court of Federal Claims relied in part upon the earlier reviewed decision of the United States Tax Court in Abdo v. Commissioner, which—although involving narrower facts—similarly interpreted Section 7508A(d) as providing mandatory statutory relief. In Abdo, the Tax Court concluded that the statutory disaster relief provision operated to extend the deadline for filing a Tax Court petition by 60 days from the beginning of the COVID-19 disaster period, effectively extending certain filing deadlines from January 20, 2020, through March 20, 2020. The Tax Court noted it did not need to address a broader application of the statute in that case and has continued to apply Abdo in other cases involving similar procedural circumstances.  Accordingly, it has not yet addressed whether the rationale extends more broadly to the entire disaster period or to other federal tax timing provisions, interest computations, or refund-related procedural rules.

Importantly, the legal landscape surrounding these issues remains unsettled and continues to evolve rapidly. Although the taxpayer prevailed in Kwong v. United States, the government has appealed the decision to the United States Court of Appeals for the Federal Circuit. In addition, while the IRS ultimately settled rather than appeal Abdo—presumably due to the narrow procedural posture presented—it subsequently issued a nonprecedential Action on Decision (“AOD”) on May 15, 2026, signaling that the government intends to continue advancing a narrow interpretation of Section 7508A(d) and to resist broader applications of the mandatory extension provisions arising from the COVID-19 disaster period. At the same time, additional litigation in multiple forums is expected, such as cases involving substantial refund claims, overpayment interest issues, and related timing-rule disputes connected to the COVID-19 disaster extensions.

These cases involve significant dollar amounts and differing procedural and substantive theories, further underscoring the developing and uncertain nature of this area. No court has yet definitively addressed the full scope of how Section 7508A(d) may apply across the broad range of federal tax timing rules potentially implicated during the COVID-19 disaster period, including interest accrual provisions, refund limitation periods, and related procedural computations. The combined effect of the Kwong appeal, the IRSs AOD, and the emergence of additional litigation strongly suggests that further judicial review regarding the scope of the mandatory relief provisions is inevitable.

As the litigation and administrative landscape continues to develop, businesses should consider evaluating whether protective refund claims may be appropriate to preserve potentially significant refund opportunities while avoiding the immediate costs, burdens, and visibility often associated with pursuing full refund claims or refund litigation. In many cases, a protective refund claim may provide a measured and cost-effective mechanism to preserve potential rights while allowing additional judicial, administrative, and legislative developments to unfold.

Given the complexity of the underlying procedural rules, the interaction of multiple statutory timing provisions, and the evolving nature of the government’s position, careful evaluation of the applicable facts, procedural posture, and overall claim preservation strategy remains important before undertaking a substantive refund claim process. A properly structured protective refund claim may provide businesses additional time and flexibility to monitor how other taxpayers, the IRS, and the courts continue to develop the underlying jurisprudence before determining whether further administrative action and costs are warranted.

If the Kwong interpretation is ultimately sustained or expanded, possible areas of relief could include:

• Refund claims previously thought barred by expired statutes of limitation
• Additional refund amounts resulting from expanded Section 6511 lookback periods
• Refund or abatement of penalties accrued or assessed during the COVID-19 disaster period, possibly even for earlier liabilities
• Refund or abatement of interest accrued or assessed during the disaster period, possibly even for earlier liabilities
• Claims involving IRS offsets against other liabilities
• Potential overpayment interest on refunds previously issued without statutory interest

Although the potential opportunity may appear significant, businesses should approach this area carefully and strategically, particularly in light of the government’s recently announced defensive position.

At present, the legal theory remains preliminary, unresolved, and set for intense government challenges. Pursuing substantive refund litigation or aggressive amended return positions now may require substantial internal resources, legal expense, administrative coordination, and increased IRS attention — all before the courts determine the scope of the mandatory extension relief of Section 7508A(d).

For many Fortune 500 companies and other large employers, the more prudent course may be:

• Preserve rights now
• Avoid unnecessary controversy costs
• Maintain litigation flexibility
• Monitor judicial developments or IRS settlement program carefully
• Decide later whether pursuing substantive recovery is warranted

Protective refund claims are particularly well-suited for precisely this type of developing legal issue. Properly drafted claims can preserve statutory refund rights while deferring substantive factual and legal development until the law becomes clearer.

In addition, protective claims may preserve flexibility regarding future litigation forum selection should a taxpayer later decide to pursue an actual refund suit. Maintaining that flexibility can become strategically important as different courts weigh in on the scope and application of Section 7508A(d).

For many taxpayers, protective refund claims may offer several advantages:

• Relatively modest cost compared to active refund litigation
• Preservation of statutory refund rights while the law develops
• Reduced immediate administrative burden
• Ability to monitor appellate developments before committing resources
• Potentially lower visibility than aggressive substantive refund filings
• Flexibility regarding timing and litigation forum selection
• Preservation of leverage should favorable precedent continue to develop
• Getting in line should the IRS offer establish a settlement or claim program

Protective claims have long been recognized as an appropriate mechanism for preserving taxpayer rights where legal uncertainty exists and future judicial developments in the ongoing litigation may materially affect refund entitlement. While most protective refund claims prove too speculative with the law going against taxpayers, the law in some situations develops favorably, and taxpayers have received substantial refund claims. We have experience filing many hundreds of protective refund claims—many of which are not perfected but a significant number which are perfected yielding significant refunds.

In one such example, one of our attorneys, while at a prior firm, identified and led a protective refund strategy for a Fortune 500 client. Those claims were perfected when the case law was clarified (after an unrelated taxpayer incurred seven-figure litigation costs). The client that had filed the protective refund claim received more than $50 million in tax and interest refunds despite having spent only a small sum to preserve its claims. Additional costs were only incurred when it became clear that a perfected refund claim should be filed and would be honored by the IRS. The slight delay in the process resulted in additional statutory interest being paid to the client.

Businesses may wish to evaluate whether protective refund claims should be considered in connection with:

• Previously identified overpayments (including those used by the IRS to offset other liabilities) believed barred by expired limitation periods
• Penalties accrued or assessed during the COVID-19 disaster period, even for prior liabilities
• Interest accrued or assessed during the COVID-19 disaster period, even for prior liabilities
• Refunds paid without overpayment interest during the relevant period
• Previously denied refund claims or expired refund suit periods potentially reopened under the Kwong rationale

Importantly, protective refund claims do not require businesses to fully develop the underlying factual record, quantify final amounts, or reach definitive conclusions regarding substantive legal positions before filing. As a result, businesses should be able to preserve potential rights through a measured and economical protective claim strategy while monitoring ongoing developments.

Given the potential statutory timing considerations surrounding these claims, businesses evaluating this issue should consider whether carefully drafted protective refund claims should be filed before July 10, 2026, to preserve potential refund opportunities. Such evaluation may be particularly important for companies that experienced IRS interest assessments, penalty assessments, refund claim disallowances, or IRS offsets during or following the COVID-19 disaster period.

Businesses seeking to evaluate whether protective refund claims may be appropriate should consider a focused review of previously closed refund opportunities, assessed interest and penalties, and prior IRS offsets occurring during or after the COVID-19 disaster period.

We work with large employers, in-house tax departments, and existing advisors to evaluate and implement cost-effective protective refund claim strategies designed to preserve rights while minimizing unnecessary administrative burden, expense, and controversy exposure. We also continue to monitor ongoing developments involving this issue and related protective refund claim strategies.