Federal Interest and Penalty Refunds After Kwong and Abdo

February 25, 2026

By Jonathan T. Amitrano, Rami M. Khoury & Minh Nguyen

Two recent decisions — Kwong v. United States and Abdo v. Commissioner — have energized a developing area of tax controversy: whether IRS interest and penalties that accrued during the COVID-19 disaster period must be disregarded under IRC § 7508A(d). In both cases, the courts held that § 7508A(d) operates as a mandatory, self-executing postponement provision during a presidentially declared disaster, plus 60 days. Applied to the COVID-19 disaster, this period runs from January 20, 2020, through July 10, 2023.

Under this interpretation, tax filing and payment deadlines that fell within the January 20, 2020, through July 10, 2023, window were statutorily postponed, and interest and penalties that accrued during the disregarded period may be subject to abatement or refund.  For example, penalties and/or interest assessed for late filing or late payment of a 2021 income tax return may be eligible for abatement, potentially resulting in a meaningful refund or abatement for affected taxpayers.  Taxpayers who were assessed interest or penalties tied to deadlines occurring during this period should carefully review whether relief is available.

Because the federal refund statute of limitations is governed primarily by the three-year-from-due-date and two-year-from-payment rules under IRC § 6511, taxpayers should act promptly to preserve refund rights.  Taylor Nelson Amitrano LLP is actively assisting taxpayers and practitioners in evaluating and pursuing claims arising from these decisions.

Background: IRC § 7508A and the COVID-19 Disaster

Under IRC § 7508A, Congress authorized the postponement of certain tax deadlines and the suspension of the accrual of interest and penalties during federal disasters. In 2019, subsection (d) was added to IRC § 7508A, creating a mandatory, non-discretionary period during which certain acts “shall be disregarded” for timing purposes for qualified taxpayers affected by a disaster declaration. 

The key interpretive question has been whether § 7508A(d) requires suspension of interest and penalties for all affected taxpayers during the COVID-19 incident/disaster period — even if the IRS did not expressly announce relief under earlier discretionary authority.

What Kwong and Abdo Hold

In Kwong v. United States (Ct. Fed. Cl..), the court held that § 7508A(d) operates as a self-executing statutory postponement. Because COVID-19 was a presidentially declared disaster, impacting essentially all taxpayers, the court concluded that the statutory period applies automatically, such that the taxpayers in Kwong, although filing their refund claim after the expiration of the regular refund statute of limitations, were nonetheless timely because the claim was filed prior to the end of the statutory postponement period.  This holding has broader implications, as interest and penalties should not accrue on certain tax liabilities until after the end of the postponement period. This interpretation contrasts with the IRS’s historical approach, which tied postponements to specific published relief periods under discretionary authority.

Similarly, in Abdo v. Commissioner (U.S. Tax Court), the court reiterated that § 7508A(d) creates a mandatory suspension of time for taxpayers affected by disasters — and that regulations or IRS guidance that unduly restrict the statutory language are unpersuasive. Abdo emphasized the unambiguous and mandatory nature of the statutory text.

Taken together, these holdings suggest that a much broader universe of deadlines, interest accruals, and penalty computations tied to the COVID-19 period may be subject to abatement or refund. 

Refund and Abatement Opportunities

For clients who paid interest or penalties on liabilities that were due or assessed within the COVID-19 incident period, Kwong and Abdo give rise to refund and abatement opportunities.

The applicable IRS refund statute is governed by IRC § 6511, which provides that a refund claim generally must be filed within the later of: (1) 3 years from the date the return was due; or (2) 2 years from the date the tax was paid, whichever is later.

For example, if on July 1, 2024, a taxpayer paid a failure to file penalty and interest on his 2019 Form 1040 liability that should not have accrued under § 7508A(d), the taxpayer would have until July 1, 2026, to file a refund claim.

Practical Issues for Practitioners

When evaluating client matters, consider the following:

Was the tax return at issue due during the COVID-19 disaster period, and if so, was the underlying return timely filed and paid?  If the return or payment was not timely, the taxpayer may be eligible for interest and/or penalty abatement.

Was the liability assessed during the COVID-19 disaster period?  If so, did the IRS impermissibly assess a failure to pay penalty and/or interest against the liability?  If so, the taxpayer may be eligible for interest and/or penalty abatement.  

To the extent the penalty and/or interest liability remains unpaid, the taxpayer may be eligible for abatement.

To the extent the penalty and/or interest liability was paid (in part or in full), the taxpayer may be eligible for a refund.  

Conclusion

Kwong and Abdo have opened the door to meaningful refund and abatement opportunities for taxpayers affected by the COVID-19 disaster period. These decisions create opportunities for taxpayers to request interest and penalty refunds/abatements for returns and payments due between January 20, 2020, and July 10, 2023, as well as assessments made during that period.

Taylor Nelson Amitrano LLP is a 12-attorney firm focused exclusively on tax controversy matters. We are currently advising and assisting numerous clients regarding the impact of Abdo and Kwong, including the preparation and filing of refund and abatement claims. Given the evolving nature of the law and the applicable refund statute of limitations under IRC § 6511, taxpayers and their advisors should promptly evaluate whether relief under § 7508A(d) may be available. We welcome the opportunity to assist taxpayers and practitioners in analyzing and pursuing these claims.