A court ruling that went almost unnoticed when it was issued in November 2025 is now shaking up the US tax system. The case, Kwong v. United States, was decided by the Court of Federal Claims of the United States, and its potential impact is enormous and just gave the Internal Revenue Service (IRS) extra work to do.
Millions of taxpayers, both individuals and businesses, could recover money they paid to the IRS during the pandemic in the form of penalties and interest. No one informed them of this right. The clock is ticking to claim it, and the deadline is July of this year.
The Tax Refunds Law That the IRS Ignored
The starting point is a law that Congress passed in 2019, before anyone had even heard of the coronavirus. Section 7508A of the Internal Revenue Code states that when the president declares a federal disaster, certain tax deadlines are automatically suspended for the entire emergency period plus an additional 60 days.
The wording of that law uses mandatory, not discretionary, language. When the pandemic hit and Trump declared a national emergency on January 20, 2020, that law went into effect automatically.
Fines Collected in Every Way Possible
The problem is that the IRS never interpreted it that way. The agency treated the extensions it granted during the pandemic as acts of administrative grace, voluntary decisions made on a case-by-case basis.
Meanwhile, it continued to collect penalties for late payments, for returns filed after the deadline, and for non-payment during that period. Millions of taxpayers paid those fees without knowing that federal law gave them the right not to pay them.
The Man Who Stood up Against the IRS
Terry Kwong fought it in court. The IRS rejected his requests for refunds of penalties for several previous years and notified him of the denials in September and October of 2020. Kwong filed his lawsuit in February 2023, more than two years later, which the government used as an argument that the claim was untimely.
But the federal court ruled in his favor: under the version of the law in effect in 2019, the COVID-19 pandemic suspended those deadlines from January 20, 2020, to July 10, 2023, a date resulting from adding 60 days to the official end of the public health emergency declared on May 11, 2023. Kwong’s lawsuit, therefore, was perfectly valid.
What the Ruling Means for Everyone: Billions at Stake
The logical consequence of the ruling extends far beyond Kwong’s specific case. If payment deadlines were suspended by law during that entire period, the IRS had no authority to collect late payment interest or penalties during that time. Any taxpayer who paid those charges between January 20, 2020, and July 10, 2023, may be entitled to a refund.
The number of potential victims is difficult to pinpoint exactly, but specialized media outlets and tax law firms have begun to talk about billions of dollars at stake. Western Digital, for example, filed a lawsuit in February 2026 to recover some of the nearly $21 million in interest it paid on a tax debt settled in 2023. This is not an isolated case.
How to Claim Your Tax Refund Step by Step
The claiming process first requires obtaining your tax account transcript from the IRS, a document that shows your complete payment history, including penalties and interest. This document can be requested online through the IRS Individual Online Account portal, by mail through IRS.gov, or by phone at 800-908-9946.
Once you have identified the charges corresponding to the pandemic period, the formal step is to file IRS Form 843, Claim for Refund and Request for Abatement, which is the form specifically designed for this type of request.
There are important warnings taxpayers should keep in mind. First, the ruling is not final: the government can appeal, and legal experts anticipate it will. Second, the statute of limitations for most claims expires three years after the date the return is deemed to have been filed, which in many cases points directly to July 10, 2026.
Filing a preemptive claim before that date, even while the appeal is pending, is the strategy tax attorneys are consistently recommending. Anyone who fails to act before that date will permanently lose their right to the claim, regardless of the higher court’s decision.
Don’t confuse this claim with another one
This is not the same issue as the April 15, 2025, deadline to claim the Recovery Rebate Credit related to stimulus checks. They are separate claims. The one described here is new, stems from a judicial interpretation of the disaster relief law, and affects those who paid penalties and interest to the IRS during the pandemic, not those who did not cash their stimulus checks.
