By: Chris Stephens | 06/23/26
The current relief opportunity stems from the interaction between the COVID disaster declarations and IRC section 7508A. Section 7508A authorizes postponement of certain federal tax deadlines for taxpayers affected by a federally declared disaster. Under subsection (a), the Secretary may disregard up to one year for specified acts and for computing interest, penalties, and refunds. For disasters declared after the 2019 statutory change and before the November 2021 amendment, the Code also provided a mandatory postponement rule for qualified taxpayers.
For the COVID emergency, courts have concluded that the pre-2021 mandatory rule applied automatically and was not limited to the shorter periods described in IRS notices. In Abdo, the Tax Court held that the postponement was self-executing and mandatory for covered acts. In Kwong, the Court of Federal Claims concluded that the COVID mandatory postponement period ran from January 20, 2020, through July 10, 2023, which is 60 days after the FEMA incident period ended on May 11, 2023.
At a high level, this means some taxpayers may have grounds to argue that deadlines falling during that period were suspended and that certain underpayment interest and penalties should not have accrued during that same period. The statutory basis is section 7508A, which expressly reaches not only time-sensitive acts but also “the amount of any interest, penalty, additional amount, or addition to the tax” and “the amount of any credit or refund”.
Potentially eligible taxpayers include individuals, pass-through owners, and corporations that incurred or paid penalties or underpayment interest attributable to tax periods affected by the COVID-19 tax deadline extension issue. The most commonly discussed years are 2019, 2020, 2021, and 2022, because those years most often overlap with the January 20, 2020, through July 10, 2023, postponement period and with open refund limitation periods.
The main categories of amounts at issue are:
This is the core of the current COVID tax penalty relief discussion. The theory is not merely that the IRS offered administrative grace periods in 2020 and 2021. Rather, the argument is that section 7508A itself required a longer mandatory suspension period for qualified taxpayers, and that this longer period affects both timeliness rules and the computation of penalties and interest.
For some taxpayers, the issue may involve an original return filed during the COVID period. For others, it may involve an audit assessment paid years later, where a portion of the assessed interest relates to the COVID postponement window. There is an argument that the reasoning in Kwong could extend beyond original return payment deadlines and support relief for certain interest amounts associated with later assessments, particularly where the underlying interest accrued during the COVID postponement period.
Corporate taxpayers with long-running examinations may therefore have significant exposure because section 6511(a) often turns on the two-year-from-payment rule for later-paid assessments. However, taxpayers should recognize that this position represents an extension of the Kwong analysis. The court’s decision and the July 10, 2023 postponement period directly addressed payment deadlines that fell during the COVID period, while the application of that reasoning to interest accruing for earlier periods or reflected in later assessments remains an area of ongoing litigation and legal development.
Taxpayers considering IRC 7508A penalty abatement arguments should also understand that the IRS has not broadly conceded these positions. Although at least one Tax Court decision reflected a stipulated exclusion of interest for part of the COVID period, the government has continued to litigate the issue in other cases.
For many taxpayers, July 10, 2026, is the last day to preserve a refund claim tied to the COVID postponement period. The reason is section 6511. Under section 6511(a), a claim for credit or refund generally must be filed within the later of three years from the time the return was filed or two years from the time the tax was paid.
Recent commentary applying Abdo and Kwong concludes that, when the three-year period had not yet begun or overlapped with the COVID disaster period, that period did not start running again until July 10, 2023. Under that view, many 2019 through 2022 returns remain open for the three-year window from July 10, 2023 to July 10, 2026.
This deadline matters because section 6511(b)(1) provides that no credit or refund may be allowed after the limitation period expires unless the taxpayer files a timely claim. In other words, if the claim is late, the IRS generally lacks authority to issue the refund. That is why July 10, 2026, is being treated as a hard deadline for many taxpayers.
Missing the deadline can permanently forfeit the claim. That is not a practical or administrative deadline. It is a statutory limitations deadline. Once it closes, the taxpayer generally loses the right to recover the overpayment, even if later litigation confirms that the taxpayer’s substantive position was correct.
There is an important caveat. Not every taxpayer’s deadline is July 10, 2026. Some taxpayers may have more time under the two-year-from-payment rule if they paid the tax, penalty, or interest later. For example, if an assessment was paid in 2025, the refund claim period may run two years from that payment date, assuming that period is later than the three-year rule. But for taxpayers relying on the three-year framework for 2019 through 2022 returns, July 10, 2026, is the date drawing the most attention.
Taxpayers who may be affected should consider filing a protective refund claim before the applicable statute expires. A protective claim is used when the taxpayer’s right to a refund depends on unresolved legal developments, but the taxpayer wants to preserve the claim before the limitations period closes.
For penalties and interest already paid, the usual administrative vehicle is a Form 843 refund claim. Practitioners commonly use Form 843, “Claim for Refund and Request for Abatement,” to seek refunds or abatements of assessed interest and penalties.
A well-prepared filing should generally:
The filing should be specific enough to alert the IRS to the legal and factual basis of the claim, while preserving flexibility if the law develops further. Because the IRS may deny these claims, a timely administrative filing is critical to preserve later refund suit rights.
Bennett Thrasher’s Tax Controversy Professionals can assist taxpayers in evaluating whether this opportunity applies and in preserving claims before the statute closes.
That support can include:
Taxpayers that may have paid substantial underpayment interest or penalties for 2019 through 2022 should move quickly to evaluate their position before the statute expires. To discuss whether a claim should be filed before July 10, 2026, contact Chris Stephens, Senior Manager in Bennett Thrasher’s Tax Controversy practice.
What is a protective refund claim and why should I file one now?
A protective refund claim is a timely filed claim that preserves your right to a refund when the legal basis is still being litigated or clarified. Here, it can protect your ability to recover COVID-era penalties or interest before the section 6511 statute expires. If you wait until the courts finish resolving the issue, the deadline may already have passed.
Which types of penalties and interest are covered by this relief?
The principal items being discussed are underpayment interest under section 6601 and certain additions to tax under section 6651, such as failure-to-file and failure-to-pay amounts that accrued during the COVID disaster postponement period. Depending on the facts, related interest on those penalties may also be implicated. The most commonly affected years are 2019 through 2022.
What happens if I miss the July 10, 2026 deadline?
If July 10, 2026, is your applicable section 6511 deadline and you do not file by then, the refund claim is generally barred permanently. Section 6511(b)(1) prevents the IRS from allowing a credit or refund after the limitations period expires unless a timely claim was filed. Some taxpayers may have a later deadline based on payment date, but that must be confirmed carefully.
Is the relief guaranteed or still subject to IRS approval?
The relief is not guaranteed. Taxpayers have strong support from Abdo and Kwong, but the IRS has not broadly accepted the position and litigation is continuing, including appeal activity in Kwong. A timely claim preserves the issue. Whether the IRS allows the claim administratively, or whether court action is needed, will depend on how the law develops and on the taxpayer’s facts.
For more than four decades, Bennett Thrasher has provided businesses and individuals with strategic business guidance and solutions through professional tax, audit, advisory, and business process outsourcing services. Contact Chris Stephens, partner in charge of Bennett Thrasher’s Tax Controversy practice, or call us at 770.396.2200.
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