An Overview
In a recent federal case, Kwong v. United States, the U.S. Court of Federal Claims held that the COVID-19 national emergency automatically postponed certain federal tax deadlines from March 1, 2020 through May 11, 2023, plus an additional 60 days. Under the court’s interpretation, postponing due dates means that penalties for failure-to-file and failure-to-pay, along with any related interest, generally cannot be imposed on returns whose original due dates fell within this disaster period. As a result, the time allowed to amend or challenge these returns is extended to July 10, 2026.
What’s Happening
The government is expected to appeal the Kwong decision, leaving the ruling’s permanence in doubt. Meanwhile, the deadline to request refunds or amend returns related to the COVID-19 disaster period is rapidly approaching. Taxpayers who may be affected should consider filing protective refund claims to preserve their rights while the legal situation evolves.
A protective refund claim is a properly filed claim for a refund that depends on the outcome of a future event. In this case, the event is whether the Court’s ruling will stand. The primary purpose of filing such a claim is to keep the statute of limitations open, which would otherwise expire before the future event affecting a potential refund. When submitting a protective refund claim, an explanation should be attached that clearly describes the contingency for the refund.
Typically, these claims must be filed within the later of three years after the date the tax return was filed or two years after the date the tax was paid. However, if the Court’s decision in Kwong v. United States stands, taxpayers will have until July 10, 2026 to file protective claims.
Subsequent Lawsuits
Once a protective refund claim is filed, the IRS may respond by issuing a notice rejecting the claim. If this happens, the taxpayer has two years from the date of the rejection notice to file a lawsuit to pursue a refund. If the IRS does not issue a notice, the taxpayer may file a lawsuit six months after submitting the protective refund claim. Any lawsuit filed must be based on the information included in the original protective refund claim, highlighting the importance that the claim is filed accurately.
What’s Next?
The recent ruling in Kwong v. United States presents a unique opportunity for taxpayers to file protective refund claims, potentially leading to refunds for returns that were filed between March 1, 2020 and May 11, 2023. With the outcome still unsettled, acting quickly could make all the difference.
Aprio’s tax advisors can help you determine eligibility, prepare and submit accurate claims, and handle any lawsuits or IRS notices that may follow.