High-Stakes Tax Battle: Federal Government Appeals Landmark COVID-19 Refund Ruling in Kwong v. United States
WASHINGTON — In a legal showdown with massive financial and systemic implications for both the federal treasury and millions of taxpayers, the U.S. government has officially opened its appeal in a case that threatens to upend standard interpretations of tax relief deadlines.
In its opening brief filed before the U.S. Court of Appeals for the Federal Circuit, the Department of Justice is aggressively pushing to overturn a lower court decision that turned what the government insists was a modest 60-day legislative extension into an expansive, multi-year postponement period lasting more than three years.
At the center of the controversy is Kwong v. United States (179 Fed. Cl. 382, 2025), a case originating in the U.S. Court of Federal Claims. The lower court ruled in favor of taxpayer Terry Kwong, finding that statutory deadlines for filing tax refund lawsuits were automatically and substantially paused during the height of the COVID-19 pandemic. The federal government, however, warns that if this precedent is allowed to stand, it could unlock a Pandora’s box of retroactive litigation, exposing the U.S. Treasury to tens of billions of dollars in potential tax refund claims and impacting tens of millions of taxpayers nationwide.
Main Facts of the Case
The core dispute in Kwong revolves around the interpretation of Internal Revenue Code (IRC) Section 7508A(d)—a provision enacted as part of the Taxpayer Certainty and Disaster Tax Relief Act of 2019—alongside the standard two-year statutory window for filing tax refund lawsuits outlined in Section 6532(a)(1).
The Plaintiff’s Position and Lower Court Victory
Taxpayer Terry Kwong filed a lawsuit on February 23, 2023, seeking tax refunds for the 2007, 2010, and 2011 tax years. Ordinarily, these claims would be barred by the strict two-year statute of limitations following the IRS’s disallowance of the claims.
However, the Court of Federal Claims held that Kwong’s lawsuit was timely. The lower court reasoned that Section 7508A(d) automatically postponed the running of the two-year deadline throughout the entire COVID-19 disaster period. By the lower court’s calculation, this mandatory postponement period began on January 20, 2020, and did not conclude until July 10, 2023—the date the national emergency and related disaster declarations effectively wound down in a legal sense. Because this massive tolling period encompassed the date Kwong filed his suit, the court ruled his claims valid and timely.
The Government’s Appellate Challenge
Appealing to the Federal Circuit, the federal government is asking the court to completely reverse the Court of Federal Claims’ decision and dismiss Kwong’s refund claims for 2007, 2010, and 2011 as untimely.
The government argues that the lower court fundamentally misread the statutory framework governing disaster relief extensions. Specifically, the DOJ contends that the lower court conflated the Federal Emergency Management Agency (FEMA) "incident period" with the specific "incident date" designated in the presidential disaster declaration.
According to the government’s brief, the California COVID-19 disaster declaration specified a single incident date: January 20, 2020. Under a strict reading of Section 7508A(d), the mandatory 60-day postponement period triggered by that date should have expired just two months later, on March 20, 2020—long before Kwong filed his refund lawsuit in early 2023.
Chronology of Events and Legal Milestones
To fully understand how a routine tax refund dispute escalated into a multi-billion-dollar federal appeals case, it is essential to trace the timeline of legislative enactments, emergency declarations, and judicial rulings that brought the case to this juncture.
- December 20, 2019: The Further Consolidated Appropriations Act, 2020 (P.L. 116-94) is enacted. Division Q of this legislation, known as the Taxpayer Certainty and Disaster Tax Relief Act of 2019, introduces IRC Section 7508A(d), establishing a mandatory 60-day extension for certain taxpayers affected by federally declared disasters.
- January 20, 2020: Designated as the official incident date for the COVID-19 pandemic under the California presidential disaster declaration, a date that would later become the epicenter of the legal debate in Kwong.
- March 2020: Under the government’s strict interpretation of Section 7508A(d), the initial 60-day mandatory postponement period triggered by the January 20 incident date expires. Concurrently, the Treasury Department begins issuing discretionary guidance, such as Notice 2020-18 and later Notice 2020-23, to manage pandemic tax deadlines.
- February 23, 2023: Terry Kwong files a lawsuit in the U.S. Court of Federal Claims, seeking tax refunds for the 2007, 2010, and 2011 tax years—well past the standard two-year window, but within the extended timeline endorsed by subsequent judicial interpretations.
- 2025: The U.S. Court of Federal Claims issues its decision in Kwong, 179 Fed. Cl. 382 (2025). The court rules in favor of Kwong, concluding that the postponement period under Section 7508A(d) ran continuously from January 20, 2020, through July 10, 2023.
- Current Phase (2025–2026): The federal government files its opening brief in the U.S. Court of Appeals for the Federal Circuit, seeking to overturn the Court of Federal Claims ruling and establish a restrictive precedent regarding disaster relief postponement windows.
Supporting Data and Statutory Arguments
The legal arguments presented by the federal government rely heavily on statutory construction, legislative intent, and a granular analysis of how Congress structured disaster relief provisions within the Internal Revenue Code.
Incident Date vs. FEMA Incident Period
The linchpin of the government’s appeal is the distinction between an "incident date" and an "incident period." The government asserts that Congress deliberately tied the mandatory postponement mechanism of Section 7508A(d) to the specific incident date set forth in presidential disaster declarations, rather than the sprawling incident periods determined by FEMA.
To reinforce this point, the government’s brief highlights that Congress explicitly utilized the term "incident period" in other sections of the Taxpayer Certainty and Disaster Tax Relief Act of 2019, yet conspicuously omitted it from Section 7508A(d).
"The statute means what it says," the government wrote in its summary of argument. "A date is a date, not ‘and continuing.’"
Furthermore, the government challenged the lower court’s reliance on a 2021 legislative amendment to Section 7508A(d). The DOJ argued that subsequent legislative tweaks do not retroactively alter or validate the notion that the earlier version of the statute authorized multi-year, open-ended postponement periods.
Statutory Structure and Discretionary Authority
Beyond the literal text of the statute, the government argued that the lower court’s broad interpretation severely disrupts the balanced structure of Section 7508A. The statute is structurally divided into two distinct components:
- Section 7508A(d): A mandatory postponement provision intended to provide immediate, automatic relief.
- Section 7508A(a): A discretionary postponement authority granted to the Treasury Department and the IRS.
The government reasoned that if the mandatory provision automatically suspended tax deadlines for more than three years by operation of law, it would render much of the Treasury’s discretionary relief authority redundant and unnecessary. During the pandemic, the Treasury actively exercised this discretionary authority by issuing targeted administrative guidance, such as Notice 2020-23 (Update to Notice 2020-18, Additional Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic) and Notice 2021-21 (Relief for Form 1040 Filers Affected by Ongoing Coronavirus Disease 2019 Pandemic).
The government also pointed to the literal heading of Section 7508A(d)—"Mandatory 60-day extension"—arguing that this title clearly reflects congressional intent to provide a predictable, limited period of administrative breathing room rather than an indefinite suspension of the nation’s tax laws.
Fallback and Alternative Arguments
Recognizing the complexity of the litigation, the government included several alternative arguments in its appellate brief:
- The Alternative Date Argument: If the judiciary insists that phrases like "and continuing" must impact the calculation, the government argues that the latest possible incident date would be March 22, 2020—the date of the California disaster declaration itself. This would result in a mandatory postponement period ending no later than May 21, 2020.
- The One-Year Statutory Cap: The government further contended that even under a more expansive reading of the tax code, any mandatory postponement period is legally bounded by the restrictions found in Section 7508A(a) and associated Treasury regulations, which cap administrative postponements at one year.
Official Responses and Industry Guidance
The ripple effects of the Kwong litigation are already being felt across the accounting and legal professions. Tax professionals, legal scholars, and industry organizations are closely monitoring the appellate proceedings as they evaluate how to advise clients on pending or prospective refund claims.
The AICPA Response and Resources
In response to the legal uncertainty generated by the lower court’s ruling, the Association of International Certified Professional Accountants (AICPA) has stepped up to provide actionable support for certified public accountants (CPAs) and tax practitioners.
The AICPA has established a dedicated resource page (Kwong v. United States Resource Center) containing a blend of public documents and member-exclusive guidance. Among the tools provided is an updated set of frequently asked questions (FAQs), featuring a specialized compliance checklist designed to help CPAs evaluate their clients’ positions regarding Form 843 (Claim for Refund and Request for Abatement).
Professionals seeking to navigate the complex interplay between expired limitation periods and open disaster declarations are encouraged to utilize these resources or contact industry leadership for ongoing updates.
Implications for Taxpayers and the Federal Treasury
While Kwong v. United States began as an individual dispute over tax years 2007, 2010, and 2011, its resolution carries macroeconomic consequences that could permanently reshape how emergency tax relief is administered in the United States.
Financial Exposure for the U.S. Treasury
The federal government has not minced words regarding the fiscal stakes of the appeal. In its brief, the DOJ explicitly warned the Federal Circuit that affirming the lower court’s decision would open the floodgates to widespread administrative and judicial challenges.
Because the Court of Federal Claims’ logic effectively tolled numerous taxpayer and government deadlines from January 20, 2020, through July 10, 2023, upholding the ruling could impact tens of millions of taxpayers. More alarmingly for federal budget planners, it could expose the U.S. Treasury to tens of billions of dollars in retroactive tax refund claims. Taxpayers who otherwise missed statutory windows to recoup past payments could suddenly find themselves legally empowered to demand payouts from the government.
Future Disaster Relief and Legislative Clarity
Beyond the immediate financial liabilities, the case highlights potential ambiguities in how Congress drafts emergency tax legislation. Disasters—ranging from global pandemics and economic meltdowns to localized natural disasters like hurricanes and wildfires—frequently trigger presidential declarations under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.
If federal courts interpret automatic disaster extensions by relying on extended FEMA incident periods rather than strict presidential incident dates, the predictability of federal tax deadlines could be severely compromised. Tax administrators would face chronic uncertainty regarding when audit windows close, when assessments can be made, and when refund claims become time-barred.
As the U.S. Court of Appeals for the Federal Circuit prepares to hear oral arguments and issue a definitive ruling, tax practitioners, corporate legal teams, and federal regulators alike remain on high alert. The eventual verdict in Kwong will determine not only the fate of Terry Kwong’s tax refunds, but also the boundaries of federal financial liability in times of national crisis.
To comment on this article or to suggest an idea for future tax coverage, contact Martha Waggoner at [email protected].
