Federal Government Appeals High-Stakes Tax Ruling in Kwong, Warning of Billions in Potential Pandemic Refund Claims
WASHINGTON — In a legal battle with far-reaching consequences for the federal treasury and millions of American taxpayers, the U.S. Department of Justice has formally asked the federal appellate courts to overturn a lower-court decision that dramatically expanded COVID-19 tax relief timelines.
In its opening brief filed with the U.S. Court of Appeals for the Federal Circuit, the federal government argued that the U.S. Court of Federal Claims fundamentally misread a key provision of a COVID-era tax relief law. According to the government, the lower court erred by transforming what Congress intended to be a modest, 60-day mandatory extension into an open-ended, multi-year postponement period lasting more than three years.
The appeal centers on the case Terry Kwong v. United States (Kwong, 179 Fed. Cl. 382 (2025)). The government is urging the Federal Circuit to reverse the Court of Federal Claims’ judgment and dismiss taxpayer Terry Kwong’s tax refund claims for the 2007, 2010, and 2011 tax years, maintaining that the filings were submitted far past the statutory deadline.
Should the appellate court sustain the lower court’s ruling, the precedent could open the floodgates to tens of billions of dollars in retroactive refund claims across the nation, creating a massive administrative and financial headache for the Internal Revenue Service (IRS) and the U.S. Treasury Department.
Main Facts of the Case
At the heart of the dispute is the interaction between statutory tax deadlines and emergency powers invoked during the initial outbreak of the COVID-19 pandemic.
Under Section 6532(a)(1) of the Internal Revenue Code, taxpayers generally have a strict two-year window to file a civil lawsuit seeking a tax refund after the IRS disallows their administrative claim. Taxpayer Terry Kwong filed a refund lawsuit on February 23, 2023, seeking relief for older tax years (2007, 2010, and 2011). Under normal circumstances, these claims would be considered untimely by a wide margin.
However, Kwong argued—and the Court of Federal Claims agreed—that his deadline was preserved by Section 7508A(d). This specific subsection provides for a mandatory postponement of tax-related deadlines during federally declared disasters.
In Kwong, the Court of Federal Claims held that this mandatory postponement period was triggered by the COVID-19 pandemic and remained in continuous effect for more than three years. Specifically, the lower court concluded that the postponement period began on January 20, 2020, and did not terminate until July 10, 2023. Because this massive window encompassed the date Kwong filed his lawsuit in February 2023, the court ruled that his claims were timely and allowed the litigation to proceed.
The federal government’s appeal takes direct aim at this logic, arguing that the lower court conflated a single calendar "incident date" with an extended FEMA "incident period," thereby manufacturing a multi-year grace period out of a statute designed to provide quick, short-term relief.
Chronology of Events and Litigation
To understand how a 60-day window turned into a three-year legal battle, it is necessary to examine the timeline of the statutory provisions, executive declarations, and court rulings that brought Kwong to the Federal Circuit.
- December 20, 2019: Congress passes the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (Division Q of the Further Consolidated Appropriations Act, 2020, P.L. 116-94). This legislation adds Section 7508A(d) to the Internal Revenue Code, creating a "Mandatory 60-day extension" for taxpayers affected by federally declared disasters.
- January 20, 2020: The official incident date specified in the California COVID-19 disaster declaration, which serves as the foundational disaster declaration referenced in the Kwong litigation.
- March 22, 2020: The formal date of the California presidential disaster declaration related to the novel coronavirus pandemic.
- Spring 2020–2021: The Department of the Treasury and the IRS issue various discretionary guidance documents—such as Notice 2020-23 and Notice 2021-21—to manage tax filing and payment deadlines during the ongoing public health emergency, operating under the assumption that they retained discretionary authority alongside statutory rules.
- February 23, 2023: Terry Kwong files his tax refund lawsuit in the U.S. Court of Federal Claims, seeking refunds for the 2007, 2010, and 2011 tax years, relying on the theory that disaster-related postponements kept his legal window open.
- 2025: The U.S. Court of Federal Claims issues its decision in Kwong v. United States (179 Fed. Cl. 382), holding that the Section 7508A(d) postponement ran continuously from January 20, 2020, through July 10, 2023. The court rules that Kwong’s lawsuit was timely filed.
- Late 2025 / Early 2026: The federal government files its opening brief with the U.S. Court of Appeals for the Federal Circuit, asking the appellate court to reverse the lower court’s decision and dismiss Kwong’s claims.
Supporting Data and Statutory Interpretation
The core of the government’s appeal relies on a strict, text-based reading of the Internal Revenue Code, contrasting the wording of Section 7508A(d) with broader emergency management concepts.
Incident Date vs. FEMA Incident Period
The government’s principal contention is that the Court of Federal Claims erred by relying on the COVID-19 "incident period" designated by the Federal Emergency Management Agency (FEMA) instead of the precise "incident date" established by the presidential disaster declaration.
In the California COVID-19 disaster declaration, the government points out that a single incident date was specified: January 20, 2020. Consequently, under a strict reading of the mandatory postponement statute, the clock should have run for 60 days, ending on March 20, 2020.
In its brief, the government summarized this argument succinctly:
"The statute means what it says. A date is a date, not ‘and continuing.’"
The government further noted that Congress deliberately chose its terminology. Lawmakers utilized the phrase "incident period" in other sections of the Taxpayer Certainty and Disaster Tax Relief Act of 2019, yet conspicuously omitted it from Section 7508A(d). According to the DOJ, this omission indicates that Congress intended for mandatory postponements to anchor to a fixed, discrete date rather than an amorphous, rolling emergency period.
Structure of Section 7508A
The government also argued that the lower court’s expansive interpretation upends the carefully constructed statutory architecture of Section 7508A. Congress established a dual-track system:
- Section 7508A(d): A mandatory postponement provision triggered automatically upon a disaster declaration.
- Section 7508A(a): Discretionary postponement authority granted to the Secretary of the Treasury.
The DOJ argued that if Section 7508A(d) automatically halted and extended tax deadlines for more than three years without executive intervention, much of the Treasury’s discretionary relief authority would be rendered superfluous. The issuance of administrative guidance like Notice 2020-23 and Notice 2021-21 demonstrates that the executive branch actively managed pandemic relief under the belief that its discretionary tools were necessary—an administrative reality that would be undermined if the mandatory provision acted as an indefinite blanket suspension.
Furthermore, the government pointed to the very heading of Section 7508A(d)—"Mandatory 60-day extension"—as clear evidence of legislative intent. The heading reflects an expectation of automatic yet circumscribed relief, rather than an open-ended suspension of the tax code’s procedural barriers.
Alternative Arguments by the Government
Anticipating pushback on its primary statutory reading, the government offered alternative fallback positions in its brief:
- The March 2020 Alternative: If the phrase "and continuing" must somehow be read into the calculation of the postponement period, the government argued that the latest possible incident date would be March 22, 2020 (the date of the California disaster declaration itself). Even under this reading, the mandatory postponement period would have expired shortly thereafter on May 21, 2020.
- The One-Year Statutory Cap: The government further maintained that even under the broadest conceivable reading of the statute, a mandatory postponement period could not lawfully exceed one year. This limitation, it argued, is imposed by the structural constraints of Section 7508A(a) and related Treasury regulations governing disaster relief.
Official Responses and Broader Implications
The stakes of the Kwong appeal extend far beyond a single taxpayer’s historical filings. By transforming a brief 60-day window into a multi-year extension running from January 20, 2020, to July 10, 2023, the Court of Federal Claims effectively paused a vast array of administrative and judicial deadlines across the tax system.
Financial and Administrative Warnings
In its brief, the federal government issued a stark warning to the Federal Circuit regarding the systemic fallout of the lower court’s decision. The ruling threatens to impact tens of millions of taxpayers nationwide. More critically, it exposes the U.S. Treasury to tens of billions of dollars in potential refund claims that would otherwise be barred by statutory expiration dates.
If allowed to stand, the precedent could force the IRS to process and pay out historical claims that lawmakers likely never intended to revive when they drafted the 2019 disaster relief legislation. Legal analysts note that the case could spark a wave of protective refund filings and litigation from taxpayers seeking to take advantage of the extended timeline before the appellate process concludes.
Professional Guidance for Tax Practitioners
As the legal battle plays out in the federal courts, tax professionals and Certified Public Accountants (CPAs) are closely monitoring developments to advise their clients properly.
The Association of International Certified Professional Accountants (AICPA) has established a dedicated resource center to help practitioners navigate the complex procedural landscape surrounding the litigation. The AICPA Kwong resource page features updated frequently asked questions (FAQs) and practical checklists designed to assist CPAs in evaluating client eligibility and determining appropriate next steps regarding Form 843 (Claim for Refund and Request for Abatement).
As the U.S. Court of Appeals for the Federal Circuit prepares to weigh oral arguments in the case, tax administrators, legal scholars, and practitioners alike wait to see whether the appellate bench will enforce a strict reading of statutory timelines or uphold a broad, pandemic-era expansion of taxpayer rights. A decision is expected later in the year, and it will undoubtedly serve as a landmark ruling on the limits of emergency tax relief.
