Section 7508A:  Deadlines Loom for Taxpayers Seeking Refunds Under Special COVID Relief Rules

Many taxpayers that may be entitled to refunds of IRS interest and penalty payments under more generous interpretations of the COVID relief rules will likely have only a few months (until July 10, 2026) to file refund claims to protect their rights. Some deadlines may run even sooner.

Important recent decisions of the Tax Court and the Court of Federal Claims, both courts of national jurisdiction, have rejected the IRS’s narrow readings of the tax code’s disaster relief provisions as they applied to the COVID emergency of 2020-23. The law is likely to remain unsettled for some time, but many taxpayers may need to take immediate action if they want to protect their rights to obtain refunds if the decisions are upheld.

Background

The tax code’s rules for deadline extensions and other relief triggered by Federal disaster declarations have been repeatedly refined over time. Section 7508A(a) of the Code generally gives the IRS discretion to waive deadlines, interest, and penalties for “qualified taxpayers” in the aftermath of disasters for periods of up to one year.

In 2019, Congress added subsection (d) -- renumbered subsection (e) in 2025[1] -- which in its current form extends the deadlines for taking certain actions affecting the tax liabilities of “qualified taxpayers” for up to 120 days after the disaster is declared. However, before subsection (d) was amended in 2021,[2] the prescribed period could last until sixty days after the end of the disaster event. That version of subsection (d) also provided that the period would be “disregarded in the same manner” as when the IRS exercises its discretionary authority in subsection (a), which specifically describes the period as being disregarded in the determination of the amount of interest or penalties.

The 2019 version of section 7508A(d) is the version that would potentially apply to the national emergency declared for the COVID pandemic on March 13, 2020.[3] The Government position, however, embodied in formal Treasury Regulations, has been that subsection (d) only applies when the IRS exercises its discretion under  subsection (a), and its grace period cannot exceed one year; and moreover it did not apply to the COVID emergency at all since the initial Presidential declaration did not specify an “incident date.”[4]

Recent Judicial Developments

Several recent court cases, however, suggest that -- contrary to the Regulations -- section 7508A(d) may indeed have applied to the COVID emergency, independently of subsection (a). If that position is upheld, many taxpayers may be entitled to substantial benefits, especially if they paid interest or penalties to the IRS that accrued during the relief period under subsection (d) or were penalized for a failure to meet tax-related deadlines that fell within that period. The putative relief period with respect to the COVID emergency (the “COVID relief period”) may have extended from January 20, 2020, until July 10, 2023 (sixty days after the declared end of the “incident period” on May 11, 2023). [5]

It is not always clear how these rules might play out in different circumstances, but the application of the 2019 version of subsection (d) to the COVID emergency could have wide-ranging implications on at least three fronts:

• Postponed deadlines may excuse late performance of obligations with deadlines during the COVID relief period and thus negate penalties, e.g., for failure to timely file returns or pay taxes or make required estimated tax payments during the grace period.
• Both interest and certain penalties that accrue over time (such as penalties for late filing or payment, or for failing to timely file certain forms) may be suspended during the relief period even if they relate to tax liabilities or failures that predated the emergency.
• The relief period potentially extends the deadlines for filing many types of refund claims; for example, it may allow filing timely refund claims relating to tax returns that were either required to be filed or actually filed during the relief period until July 10, 2026, even though the ordinary statute of limitations may otherwise already have expired.

Abdo v. Commissioner

The judicial developments began with the Tax Court’s reviewed opinion (that is, a decision by the full court) in Abdo v. Commissioner, 162 T.C. 148 (2024). Abdo did not involve either interest and penalties or the statute of limitations for filing refund claims. The taxpayers in Abdo narrowly missed a deadline for filing a petition in Tax Court in response to a statutory notice of deficiency, which was potentially subject to tolling under section 7508A(d). The Tax Court held that the application of section 7508A(d) was automatic and the Regulations were invalid to the extent that they provided otherwise, and the petition was therefore timely. The parties later settled the case so there will be no appeal.

Kwong v. United States

The other decided case is Kwong v. United States, 179 Fed. Cl. 382 (2025), in the Court of Federal Claims. Kwong involved the statute of limitations for filing suit on disallowed refund claims, another of the “covered actions” potentially eligible for deadline relief under section 7508A(d).

The taxpayer’s timely refund claims for penalties for three taxable years were formally disallowed in September and October of 2020, starting what would normally be a two-year period for filing suit.[6] The taxpayer eventually brought suit on the rejected claims, but not until February, 2023, and the Government moved for summary judgment on the grounds that the action had been brought untimely. In November 2025, the court denied the Government’s motion, holding that section 7508A(d) applied. Reaching a point that the Tax Court had not had to consider in Abdo, the court also held that the COVID relief period extended all the way through July 10, 2023.

On March 13, 2026, the parties stipulated to entry of a judgment in favor of the taxpayer for $84,000, subject to the Government’s right to appeal the denial of its motion for summary judgment on the limitations issue to the Court of Appeals for the Federal Circuit. The Government will likely notice an appeal shortly.

The position of the Court of Federal Claims and the Federal Circuit is particularly important because they are courts of national jurisdiction – taxpayers can sue there regardless of residence -- and moreover have jurisdiction over refund actions, which the Tax Court generally does not. Moreover, those courts have particular expertise in interest matters because, for jurisdictional reasons, most cases asking for additional interest on tax refunds have to be brought in the Court of Federal Claims.

Meta Platforms, Inc. v. Commissioner

The petition in the Tax Court case of Meta Platforms v. Commissioner, (Dkt. No. 16081-25), filed in December 2025, included allegations that section 7508A would relieve the taxpayer from underpayment interest that would otherwise accrue during the grace period on any deficiency determined. The Commissioner moved to strike those passages because the Tax Court generally lacks jurisdiction over issues concerning underpayment interest except in limited circumstances when it determines an overpayment including underpayment interest previously paid in. That motion remains pending before the court.

Western Digital Corp. v. United States

In 2023, Western Digital settled a Tax Court case involving its tax year 2008 by agreeing to pay a stipulated underpayment and associated interest. Western Digital Corp. v. Comm'r, No. 18984-18 (T.C. Stipulated decision entered Mar. 2, 2023). In February 2026, it brought suit on a timely refund claim in the Court of Federal Claims seeking to apply Kwong to obtain a refund of the interest it had paid to the extent that it had accrued after January 20, 2020, which it computes at over $20 million. Western Digital Corp. V. United States, No. 1:26-cv-00215 (Fed. Cl. filed Feb. 6, 2026). If the Government appeals Kwong, it may seek a stay in Western Digital pending the outcome.

Class Actions on Refund Interest Issues

February, 2026  also saw two class action complaints  filed in federal District Courts – one against the United States and one against the Virgin Islands under its “mirror Code” – seeking additional refund interest.[7] The plaintiffs assert that section 7508A(d)’s tolling period overrides certain provisions that otherwise limit their entitlement to refund interest in certain circumstances. (Because of jurisdictional constraints, the asserted class in the action against the United States is limited to taxpayers seeking no more than $10,000 in additional interest.)

Eligibility to File Claims

Taxpayers and advisers seeking to evaluate whether to pursue potential claims need to consider several factors bearing on eligibility.

“Qualified Taxpayer” Status

To be eligible for relief under section 7508A, taxpayers must have been “affected” by the declared disaster, which usually requires that they reside in, or have some other nexus to, the location of the declared emergency. For purposes of subsection (d), a “qualified taxpayer” eligible for relief is specifically defined to include, among other categories, taxpayers whose principal residence and/or principal place of business is in the disaster area, and taxpayers with “records” located there that are “necessary to meet a deadline” for one of the tax-related actions subject to postponement.

As COVID emergencies were eventually declared nationwide, a very large proportion of U.S. taxpayers, both individuals and entities, will be qualified taxpayers. However, the qualified status of nonresident taxpayers (except for businesses with a substantial U.S. presence) may be questioned. Some taxpayers may nonetheless have a case for claiming qualified status based on the “necessary records” prong, for example if their return preparers and/or asset managers are in the United States and held some significant part  of the pertinent records.

Filing Refund Claims

Taxpayers seeking a refund of tax, penalty, and/or interest that they have already paid must file an adequate refund claim within the applicable statute of limitations for requesting a refund.[7] It does not matter for this purpose whether interest and penalties were paid together with the related tax or separately, or whether the payments were voluntary or as a result of IRS action (which could include, for example, applying a refund due the taxpayer to pay off another tax liability).

Claims for refund of interest and penalties only are ordinarily filed on IRS Forms 843, even if the interest or penalties relate to an income tax return. Because a claim based on the application of section 7508A(d) to the COVID emergency would be inconsistent with final regulations, in the unusual case where the refund claim is on a filing that serves as the taxpayer’s original income tax return, a special disclosure might have to be made on Form 8275-R.

Protective and/or informal claims for refund may be filed to hold the statute of limitations open, although such claims would have to be “perfected” before filing suit, and may be subject to disallowance in the meantime, especially if a taxpayer does not timely respond to requests for further information. A protective claim may request that consideration be deferred until, for example, resolution of pending litigation, although the IRS has considerable discretion to decide when and how they will handle such claims.

Full computations with the initial submission are not necessary, and it would be good to include reasonable estimates or illustrative calculations if possible. However, it is vitally important to make clear in the original filing what amounts are potentially subject to the claim and the grounds on which the taxpayer seeks relief. Pending refund claims can be “perfected” by the submission of supplemental information, but they cannot be amended to add further grounds or theories for relief after the statute of limitations has run.

If a review of the interest computation turns up other issues which may support a timely refund claim (whether these relate to section 7508A(d) or otherwise), these also should be claimed and explained separately.

If additional amounts have been assessed but not yet paid or collected, taxpayers should include an explicit claim for abatement of the uncollected amounts.

The Statute of Limitations

In general, refund claims are timely if filed within three years of the filing of a timely return, or within two years after the tax was paid. They will also be timely if filed within three years of a delinquent return, or two years of a payment, although in those cases the recoveries may be limited. These periods may be extended by agreement between the taxpayer and the IRS, and many other special rules may apply.

The tolling period in the 2019 version of section 7508A(d), if it applies, would disregard the relief period in computing statutes of limitations. This tolling may extend the statute of limitations for filing many refund claims, including most claims relating to taxable years 2019 through 2021, until July 10, 2026.

Of course, taxpayers may also file refund claims that would be timely under ordinary rules, which might include cases where the statute of limitations has been extended by agreement or the occurrence of other events, or cases where some amount of tax, interest and/or penalty has been paid within two years before the claim is filed (or three years if the payments relate to an original tax return that was also filed within that period).

The facts are critical in determining whether the statute of limitations for filing a refund claim is, or may be, still open. Sometimes the answer may be uncertain because the Government may dispute whether and how section 7508A(d) may affect the outcome. However, many taxpayers may have significant potential refund claims that would be potentially allowable if filed by July 10, 2026, and would not be allowable if filed afterwards. (Note that the period for filing some taxpayers’ claims may expire before July 10, particularly if those claims rely on the “ordinary” statute of limitations rules rather than section 7508A(d). Others may not expire until a later date.)

Developing the Facts

Taxpayers and their advisors must develop the facts concerning their prior tax-related dealings, assembling and reviewing the associated documents and the transcripts for the related tax accounts that show assessments, payments, and refunds, in order to determine whether there is a potential claim for refund under section 7508A(d) and whether the statute of limitations remains open for filing a refund claim.

In all but simple cases, taxpayers are likely to need professional assistance to review the transcripts and prepare proposed corrected interest computations, although if necessary, it is possible that this might be left until after the initial protective claim is filed.

Key things to look for in determining whether a taxpayer might have a potential claim include:

• Did the taxpayer pay interest and/or time-sensitive penalties (e.g., monthly penalties for failure to file returns or pay tax or certain disclosure failures) that accrued during the emergency period?
• Did the taxpayer pay penalties as a result of a failure to act by some deadline that fell within the emergency period, but the act was performed before the end of the period? Taxpayers should look for not only late filing and payment penalties relating to tax returns and other tax forms, but, for example, estimated tax penalties. This category could also potentially cover foreign reporting penalties – which can sometimes be very substantial – so long as they relate to a failure to file “a return of tax.”

There may be other factors to consider. For example, some potential refund claims that had been thought to be time-barred -- not necessarily related to interest or penalties or section 7508A -- might be “rescued” if the special disaster tolling provisions apply to the refund deadlines. On the other hand, while generally resolving a dispute concerning the principal amount of tax liability outside the refund litigation setting will not preclude mathematical claims relating to interest or penalties on that tax, sometimes the taxpayer’s prior tax history will foreclose a claim or make it inadvisable.

The next matter for consideration is whether there is a case that the statute of limitations might remain open We would recommend that taxpayers and their advisors prioritize identifying

• claims relating to income taxes for the taxable years 2019 through 2022, as the period for filing such refund claims may be argued to be open until July 10, 2026;
• claims relating to original tax returns filed during or after the disaster period – even if they were delinquent returns for earlier years – as again, claims for refunds of amounts paid with or after these returns might be argued to be open for filing until July 10, 2026; and
• claims relating to tax accounts that remain subject to agreed extensions and/or on which any payment (of tax, interest, or penalty) was made within the past two years.

Note that the statute of limitations for filing refund claims in the latter two categories may expire before or after July 10, 2026.

Caplin & Drysdale’s Tax Disputes & Tax Litigation Group is well versed on the nuanced substantive and procedural requirements that must be satisfied to successfully prosecute refund claims and abatement requests such as those contemplated here. For more information, please contact one of the Caplin & Drysdale attorneys listed below.