Federal Government Appeals Landmark COVID-19 Tax Case, Warning of Billions in Potential Refund Claims

WASHINGTON — In a high-stakes legal battle that could ultimately decide the fate of tens of billions of dollars in tax refunds for millions of Americans, the federal government has launched an aggressive challenge against a lower court’s interpretation of pandemic-era tax relief legislation.

Filing its opening brief at the U.S. Court of Appeals for the Federal Circuit, the Department of Justice is urging the appellate court to overturn a decision by the U.S. Court of Federal Claims in the case Kwong v. United States. At the heart of the dispute is a fundamental disagreement over how to calculate deadlines under a statutory provision enacted to protect taxpayers during natural disasters and emergencies.

The government contends that the lower court fundamentally misread the statute, inadvertently turning what Congress intended to be a modest, 60-day mandatory extension into an open-ended, three-and-a-half-year postponement period. If allowed to stand, the government warns, the precedent could trigger an unprecedented wave of retroactive tax refund claims, disrupting federal revenues and undermining the carefully calibrated statutory framework governing tax administration.

Main Facts

The controversy centers on Terry Kwong v. United States (179 Fed. Cl. 382, 2025), a case involving tax refund claims for the 2007, 2010, and 2011 tax years. Under Internal Revenue Code (IRC) Section 6532(a)(1), taxpayers generally face a strict two-year window to file a lawsuit seeking a tax refund after the IRS disallows their administrative claim.

Terry Kwong filed his refund lawsuit in the Court of Federal Claims on February 23, 2023. Under ordinary circumstances, these claims would have been deemed untimely. However, Kwong argued—and the lower court agreed—that his deadline was automatically and substantially extended by IRC Section 7508A(d). This provision grants mandatory relief from various tax deadlines during presidentially declared disasters.

The Court of Federal Claims held that Section 7508A(d) automatically postponed the two-year litigation deadline for the entirety of the COVID-19 disaster period. The lower court concluded that this massive postponement window opened on January 20, 2020, and did not close until July 10, 2023—spanning more than three years. Measured against this extended timeline, the court ruled that Kwong’s February 2023 lawsuit was filed well within the permissible window and was therefore timely.

The federal government’s appeal seeks to dismantle this interpretation. The DOJ argues that the lower court conflated distinct legal concepts—specifically, the single "incident date" specified in a presidential disaster declaration versus the fluid "incident period" determined by the Federal Emergency Management Agency (FEMA).

By relying on FEMA’s prolonged incident period rather than the presidential incident date, the lower court manufactured a multi-year extension that Congress never authorized, according to the government’s brief.

Chronology of Events

To understand how a short-term administrative fix evolved into a multi-year legal battle, it is necessary to examine the timeline of legislative enactments, executive declarations, and judicial rulings:

• December 20, 2019: Congress enacts the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (Division Q of the Further Consolidated Appropriations Act, 2020, P.L. 116-94). Among other provisions, the act amends IRC Section 7508A by adding subsection (d), which establishes a "Mandatory 60-day extension" for tax deadlines following a qualified disaster.
• January 20, 2020: The designated incident date for the COVID-19 pandemic under the relevant California disaster declaration, which the federal government argues should serve as the anchor point for calculating statutory extensions.
• March 2020: As the COVID-19 pandemic accelerates globally, the federal government issues widespread emergency declarations. FEMA subsequently designates an expansive "incident period" for the pandemic that remains open-ended for years.
• Throughout 2020 and 2021: The Internal Revenue Service exercises its discretionary authority under IRC Section 7508A(a) to issue targeted administrative relief, including Notice 2020-18, Notice 2020-23, and Notice 2021-21, giving taxpayers extra time to file returns and make payments during the ongoing public health crisis.
• February 23, 2023: Taxpayer Terry Kwong files a lawsuit in the U.S. Court of Federal Claims seeking tax refunds for the 2007, 2010, and 2011 tax years, relying on the premise that his statutory deadlines have been tolled indefinitely by the ongoing disaster declaration.
• 2025: The U.S. Court of Federal Claims issues its decision in Kwong, holding that the mandatory postponement period under Section 7508A(d) ran from January 20, 2020, to July 10, 2023. The court rules in favor of Kwong, finding his refund suit timely.
• Recent: The federal government files its opening brief in the U.S. Court of Appeals for the Federal Circuit, asking the appellate court to reverse the Court of Federal Claims and dismiss Kwong’s refund claims as time-barred.

Supporting Data and Statutory Interpretation

The core of the government’s legal argument relies on a strict textualist interpretation of the Internal Revenue Code, contrasting the specific wording of Section 7508A(d) with other provisions of tax disaster relief law.

Incident Date vs. FEMA Incident Period

The government’s primary contention is that the Court of Federal Claims erred by substituting FEMA’s administrative "incident period" for the statutory "incident date" established in presidential declarations.

In the case of California’s COVID-19 disaster declaration, the government points out that the declaration specified a single incident date: January 20, 2020. Under a literal reading of Section 7508A(d), the mandatory 60-day postponement period should have begun on that date and expired exactly 60 days later, on March 20, 2020.

"The statute means what it says," the government’s brief asserts in its summary of argument. "A date is a date, not ‘and continuing.’"

The DOJ notes that when Congress drafted the Taxpayer Certainty and Disaster Tax Relief Act of 2019, it deliberately chose specific terminology. While Congress explicitly used the term "incident period" in other sections of the 2019 act, it chose not to use that phrase in Section 7508A(d), opting instead to anchor the mandatory extension to a concrete date. Furthermore, the government dismissed the lower court’s reliance on a subsequent 2021 legislative amendment to Section 7508A(d), arguing that the amendment merely clarified the statute and did not retroactively validate indefinite postponements.

Statutory Structure and Discretionary Authority

Beyond textual analysis, the government argues that the lower court’s interpretation fractures the overarching structure of IRC Section 7508A.

The statute is bifurcated into two distinct mechanisms:

1. Section 7508A(d): Creates a mandatory postponement provision triggered automatically by a disaster declaration.
2. Section 7508A(a): Grants the Treasury Department discretionary authority to postpone tax deadlines for up to one year during disasters.

The government argues that if Section 7508A(d) were designed to automatically halt deadlines for over three years, it would render much of the Treasury’s discretionary relief authority superfluous. During the pandemic, the IRS actively utilized its discretionary power—issuing guidance such as Notice 2020-23 and Notice 2021-21 to manage tax filings. If the mandatory rule operated as the lower court claimed, these administrative notices would have been unnecessary.

Additionally, the government highlights the heading of Section 7508A(d), which reads: "Mandatory 60-day extension." According to the DOJ, this heading reflects congressional intent to provide swift, automated, but inherently limited relief rather than an open-ended suspension of tax deadlines.

Alternative Arguments

Anticipating pushback from the appellate panel, the government introduced alternative legal fallbacks in its brief:

• The Alternative Date: If the phrase "and continuing" must somehow be factored into calculations, the government argues that the latest possible incident date would be March 22, 2020—the date the California disaster declaration was officially issued. Even under this interpretation, the mandatory postponement would have concluded just 60 days later, on May 21, 2020.
• The One-Year Ceiling: The government further maintains that even under the broadest conceivable reading of the statute, a mandatory postponement period cannot legally exceed one year, pointing to statutory limits embedded within Section 7508A(a) and associated Treasury regulations.

Official Responses and Implications

The implications of the Kwong appeal extend far beyond a single taxpayer’s dispute over historical tax years. Because tax administration relies heavily on predictable statutory deadlines, the Court of Federal Claims’ ruling has created widespread anxiety within the tax community and federal agencies alike.

Potential Financial and Administrative Fallout

In its brief, the government issued a stark warning regarding the macro-level consequences of the lower court’s reasoning. By effectively freezing numerous taxpayer and government deadlines from January 20, 2020, through July 10, 2023, the precedent threatens to destabilize tax administration.

The DOJ cautioned that allowing the ruling to stand could:

• Impact tens of millions of taxpayers nationwide who missed traditional filing or refund windows during the broader pandemic era.
• Expose the U.S. Treasury to tens of billions of dollars in unexpected, retroactive tax refund claims.
• Create severe administrative backlogs as the IRS is forced to adjudicate stale claims dating back to the late 2000s and early 2010s.

Professional Guidance for CPAs and Tax Practitioners

As the legal battle moves through the U.S. Court of Appeals for the Federal Circuit, tax professionals are closely monitoring developments. The American Institute of CPAs (AICPA) has stepped up to provide members with vital support tools to navigate the uncertainty.

The AICPA maintains a dedicated resource portal—the AICPA Kwong v. United States Resource Center—which features a combination of public documents and member-exclusive guidance. Among the tools provided is an updated set of Frequently Asked Questions (FAQs) featuring a practical checklist. This checklist is designed to help Certified Public Accountants (CPAs) determine the appropriate next steps for clients who may be considering filing protective refund claims or utilizing Form 843, Claim for Refund and Request for Abatement, in light of the ongoing litigation.

What Lies Ahead

Legal experts note that the Federal Circuit’s eventual ruling in Kwong will serve as a definitive precedent on how emergency tax relief statutes interact with administrative disaster timelines. If the appellate court sides with the government, it will shut the door on billions of dollars in pandemic-extended refund claims and reaffirm the narrow scope of mandatory statutory extensions. Conversely, if the Federal Circuit affirms the lower court, it could unlock a massive wave of retroactive litigation, forcing Congress or the IRS to scramble for legislative or administrative containment strategies.

Oral arguments are expected to be scheduled in the coming months, with a final decision likely delivered later in the year. Taxpayers and practitioners with lingering refund claims from prior years are advised to consult closely with tax professionals before attempting to leverage the lower court’s now-contested interpretation of Section 7508A(d).