The Government Is Asking an Appeals Court to Overturn the COVID Penalty Ruling: What It Means If You Still Owe or Filed a Claim

The federal government has filed its opening brief in the U.S. Court of Appeals for the Federal Circuit, asking that court to reverse a lower-court ruling that could entitle millions of taxpayers to refunds of COVID-era penalties and interest. If you already filed a protective claim, or if you still carry unpaid penalties from 2020 through 2023, this development matters to you, and the case is far from over.

The Quick Background

In November 2025, the U.S. Court of Federal Claims ruled in Kwong v. United States, 179 Fed. Cl. 382, that a federal tax law automatically postponed tax deadlines for the entire COVID-19 disaster period, January 20, 2020, through July 10, 2023. That decision rattled the IRS because it suggested that penalties and interest assessed during those years may never have been legally owed. For the full story on how the lower court reached that conclusion and what it could mean for your taxes, read our earlier explainer: Kwong v. United States: The COVID Penalty Refund Ruling Explained.

The short version: the IRS and Justice Department are appealing that judgment to avoid potentially paying out billions of dollars in refunds to Americans who filed late or paid interest to the IRS during the COVID-19 pandemic.

What the Government Is Now Arguing

In its opening brief to the Federal Circuit, the government argued that the lower court improperly turned a 60-day extension into a postponement period lasting over three years.

The core of the government’s position is a single word: “date.” The government’s principal argument is that the court improperly relied on the COVID-19 “incident period” set by FEMA rather than the “incident date” specified in the presidential disaster declaration. Under the government’s reading of IRC Section 7508A(d), the mandatory 60-day postponement should run from the incident date of the COVID-19 declaration, which the government puts at January 20, 2020, making the postponement end around March 20, 2020, not July 10, 2023.

As an alternative argument, the government said that if the phrase “and continuing” must be treated as affecting the postponement period, the latest incident date should be March 22, 2020, the date of the California disaster declaration, resulting in a postponement period ending May 21, 2020. The government also argued that even under a broader reading of the statute, the mandatory postponement period could not exceed one year because of Section 7508A(a)’s one-year limitation and related Treasury regulations.

The government’s brief makes clear that it views the stakes as enormous. The Court of Federal Claims’ interpretation could affect tens of millions of taxpayers and expose Treasury to tens of billions of dollars in potential refund claims because it effectively postpones numerous taxpayer and government deadlines from January 20, 2020, through July 10, 2023, the brief said.

What This Means If You Already Filed a Protective Claim

If you filed a protective refund claim before the July 10, 2026, deadline that most advisors cited, your claim is still in play, but do not expect quick action. The IRS places COVID-era penalty refund claims in a suspense status while related federal court appeals are ongoing. That means your claim sits in a holding pattern until the appeal runs its course.

The most important thing you can do right now is keep your records. Hold on to every document that shows you filed the claim: the Form 843 itself, proof of mailing or electronic submission, and any IRS acknowledgment or confirmation number. If the appellate court ultimately rules in taxpayers’ favor, the IRS will need those records to process what you are owed. If the court rules for the government, you will want documentation of what you filed and when.

Do not read the government’s appeal as a sign that your claim is worthless. The United States has appealed the Kwong decision to the U.S. Court of Appeals for the Federal Circuit, and the final outcome may take years to be decided. Similar issues are being raised in other pending litigation, and future court decisions could expand, narrow, or reject aspects of the ruling. An appeal reaching the Federal Circuit can take many months, and the losing side there could seek further review. No one can tell you when this will be resolved.

What This Means If You Still Owe Penalties or Interest From 2020 to 2023

If you have unpaid IRS penalties or interest that accrued between January 20, 2020, and July 10, 2023, you may be wondering whether to wait this out before paying. That approach carries real risk.

Nothing about the pending appeal stops the IRS from continuing to collect what it says you owe. Kwong should not be treated as a settled conclusion that taxpayers are automatically entitled to refunds or abatements. The lower court ruled for the taxpayer in that specific case, but the law is still being contested, and the government can and will keep collecting in the meantime.

What this means practically: if you have an installment agreement, keep making those payments. If you are receiving collection notices, do not ignore them. A notice from the IRS has strict response deadlines, and missing one can cost you appeal rights or trigger enforcement action, regardless of what happens in the Kwong case.

At the same time, the outcome of this appeal could eventually affect what you owe. The ruling affects failure-to-file and failure-to-pay penalties, as well as estimated tax penalties and underpayment interest accrued during that period. If the Federal Circuit upholds the lower court’s decision, there may be grounds to seek abatement or a refund of amounts you paid or still owe for those years. If the government wins, those amounts stand.

The right move is to stay current on your obligations while a tax professional monitors the case for you.

Can You Still File a Claim If You Missed the July 10, 2026, Deadline?

The July 10, 2026, deadline that most practitioners cited has passed. We will not tell you that you can still file under it, because you cannot. However, that does not mean every possible window is closed for every taxpayer.

Some taxpayers may have heard about a July 10, 2026, deadline, which applied to many taxpayers seeking to preserve their ability to pursue certain Kwong-related refund claims. That deadline did not necessarily mean that all taxpayers seeking relief under Kwong could no longer file a claim after July 10. Under IRC Section 6511, the standard lookback rules for refund claims depend on when your return was originally filed and when the penalty or interest was actually paid. Depending on those specific dates, a separate window may still be open for some payments.

This is not something you can calculate on your own from a general article. A tax professional can pull your IRS transcript, identify which payments fall into which time windows, and tell you honestly whether any filing opportunity remains for your specific situation.

What to Do Right Now

The Kwong appeal is a developing legal story, not a done deal. Here is the practical checklist based on where things stand today:

• If you filed a protective claim: Keep all your documentation. Your claim stays pending and will not be paid until the case reaches a final outcome. No further action is required from you right now, but stay organized.
• If you owe unpaid penalties or interest from 2020 to 2023: Do not stop making agreed payments and do not ignore IRS notices. The appeal does not pause collection. A tax professional can help you manage your current balance while tracking the case.
• If you missed the July 10, 2026, deadline: Do not assume all is lost. Ask a tax professional to review your transcript and payment history to see whether any filing window still applies to your specific payments.
• If you are behind on filing or facing collections for any reason: This case is a reminder that IRS rules are complex and can change. Getting professional help now, before a notice escalates, is almost always the less costly path.

At Clear Start Tax, we work with individuals and businesses who are dealing with exactly these situations: unpaid balances, IRS notices, and tax rules that feel impossible to navigate alone. We can review your account, explain your options, and help you take a step that makes sense for your circumstances. No promises about outcomes, because no one can honestly make them while this case is still in court. What we can do is make sure you are not making decisions in the dark.