The IRS strikes back – Recent developments in Kwong and Abdo

Following the recent decisions in Kwong v. United States¹ (US Court of Federal Claims, 2025) and Abdo v. Commissioner² (US Tax Court, 2024), the government clarified its position regarding COVID-19 disaster relief in an Action on Decision (AOD). The AOD, the first since 2024, addresses the Tax Court’s holding in Abdo, acquiescing only in the narrow holding that the COVID-19 mandatory disaster declarations created a mandatory 60-day postponement from January 20, 2020, to March 20, 2020.³ The AOD, along with the recent filing of a notice of appeal in Kwong, confirms the IRS is defending its interpretation of Internal Revenue Code (I.R.C.) Section 7508A(d) and contesting the scope of mandatory disaster relief. 

For additional information on the Kwong and Abdo decisions, as well as a background on I.R.C. Section 7508A, see our prior coverage here, as well as a recent Tax Notes article by Eversheds Sutherland attorneys Cassandra (Sandy) Bradford and Joseph O’Brien.⁴ 

Background

The Kwong and Abdo cases concern the scope of relief that was granted by I.R.C. Section 7508A(d). Under I.R.C. Section 7508A(a), the IRS is granted discretionary authority to suspend certain tax obligations for “a period of up to [one] year,” including the payment of interest and penalties with respect to deficiencies, during a federally declared disaster. Congress added paragraph (d) to I.R.C. Section 7508A in 2019 as part of the Taxpayer First Act, directing that the period beginning on the earliest incident date and ending 60 days after the close of the incident period "be disregarded in the same manner" as the discretionary relief period under I.R.C. Section 7508A(a). In this context, the “incident date” would be the date on which the president declares a major disaster pursuant to authority under the Stafford Act of 1988 (e.g., hurricanes, floods, or as relevant here, a pandemic).⁵ 

Unlike the discretionary authority discussed provided in subsection (a), subsection (d), as in effect in at the outset of the COVID-19 pandemic, used the word "shall," creating a mandatory, not discretionary, minimum postponement. However, the statute left several questions unanswered regarding the COVID-19 disaster, including which deadlines the postponement covers, how to calculate the 60-day period given that the COVID-19 incident period was initially defined as “continuing” and “ended” years later,⁶ and whether mandatory relief can exceed the one-year limit in subsection (a). 

In June 2021, Treasury published final regulations that required the Secretary to first exercise discretionary authority before mandatory relief could take effect and capped the mandatory postponement at one year. Later, in November 2021, I.R.C. Section 7508A(d) was amended as part of the Infrastructure Investment and Jobs Act, which limited the disaster period to 60 days from the incident date.⁷ However, the November 2021 amendment applied only to disasters declared after the date it was enacted. Here, the issue concerns I.R.C. Section 7508A(d) as it was in effect at the outset of the COVID-19 pandemic. Taxpayers have since challenged the IRS’s position that the regulations and the statute amendment are retroactive.

In the Tax Court’s reviewed and unanimous 2024 decision in Abdo, the taxpayer challenged the validity of the June 2021 regulations. The court agreed with the taxpayer and held that I.R.C. Section 7508A(d) unambiguously provides for an automatic and mandatory postponement incorporating all acts referenced in subsection (a), and invalidated Treas. Reg. Section 301.7508A-1(g)(1) and (2) to the extent they conditioned mandatory relief on the Secretary's prior exercise of discretionary authority. The Tax Court’s holding was that the taxpayer’s petition, filed on March 17, 2020, was filed timely, despite being filed 15 days after the statutory 90-day deadline for the filing. Because the filing was within the 60-day period after the initial declaration of the COVID-19 disaster on January 20, 2020, there was no need for the court to address the outer limits of mandatory relief under section 7508A. The IRS. did not appeal the court’s decision in Abdo; however, as discussed below, the IRS. later issued an AOD disagreeing with certain aspects of the opinion. 

In Kwong, the Court of Federal Claims went further, concluding that notwithstanding Treas. Reg. Section 301.7508A-1(g)(3)(ii), nothing in subsection (d) nor the regulations import the one-year cap in subsection (a). The court held that the taxpayer’s refund suit was timely filed even though it was filed in February 2023, about 2 years and 3 months after issuance of the formal disallowances of the taxpayer’s claims for refund, which had been issued in September and October 2020. Under I.R.C. Section 6532, the statute of limitations for filing suit is two years. In dicta, the court noted that in certain circumstances, I.R.C. Section 7508A generally postpones the deadline for filing a refund suit in the Court of Federal Claims to July 10, 2023. 

Current Status of Kwong and Abdo

On May 15, 2026, the government filed a notice of appeal in Kwong to the US Court of Appeals for the Federal Circuit. The Federal Circuit's review will mark the first appellate consideration of whether I.R.C. Section 7508A(d) mandates a postponement period for a deadline not extended by the IRS. and coextensive with the full COVID-19 incident period. The court will also consider whether the regulatory one-year cap represents a permissible construction of the statute and, importantly, whether the government must disregard the entire period from January 20, 2020, through July 10, 2023, for purposes of determining relief provided under I.R.C. Section 7508A(d) for acts discussed in I.R.C. Section 7508A(a)(1) and 7508(a). 

The AOD with respect to Abdo similarly rejects the broad reading of I.R.C. Section 7508A(d) taken by the court. Generally, an AOD is designed to alert IRS personnel and the public to the current litigating position of the Office of Chief Counsel following an adverse court opinion.⁸ An AOD conveys the Office’s recommendation on whether the Service will follow a significant adverse opinion. Counsel attorneys are required to follow the litigating positions announced in AODs in future litigation or dispute resolution. The IRS acquiesces only to the narrow holding that the COVID-19 disaster declarations created a mandatory 60-day postponement from January 20, 2020, to March 20, 2020. The petition in Abdo was filed on March 17, 2020, within the initial 60-day period. The IRS expressly declined to acquiesce to the Tax Court's reasoning, its invalidation of the relevant regulatory provisions, or any interpretation extending mandatory relief beyond that 60-day window. In its discussion, the AOD:

1. Identifies several purportedly unresolved ambiguities in I.R.C. Section 7508A(d), including which deadlines the mandatory postponement covers and whether it can exceed the one-year cap in subsection (a);
2. Emphasizes the narrow factual posture of Abdo and argues that the Tax Court did not address the outer limits of the postponement when a disaster declaration states the incident is "continuing;"
3. Disagrees that the phrase "in the same manner" as the discretionary relief period under I.R.C. Section 7508A(a) is unambiguous and states that the IRS will continue to defend its regulatory interpretation requiring the Secretary to first exercise discretionary authority; and 
4. Acknowledges that the November 2021 amendments rendered the regulatory provisions at issue obsolete but nonetheless disagrees with the Tax Court's partial invalidation of those regulations.

The Kwong appeal and the Abdo AOD signal that the IRS will not voluntarily extend mandatory relief under I.R.C. Section 7508A(d) beyond the 60-day window recognized in Abdo. Taxpayers seeking broader relief may consider the filing of protective claims for relief and should expect the IRS to contest such claims.

Implications for Taxpayers

The Kwong appeal and the Abdo AOD together clarify the IRS's position and define the landscape for taxpayers considering refund claims related to interest and/or penalties assessed during the 39-month COVID-19 incident period. The IRS has signaled that it will not voluntarily extend interest or penalty relief beyond the narrow 60-day window. Taxpayers seeking relief for the full disaster period through July 10, 2023, should expect the IRS to deny administrative refund claims and resist settlement carveouts. To preserve their rights, taxpayers may decide to file protective claims pending the outcome of the appeal. It is important to note that the time period for filing refund claims under I.R.C. Section 6511 with respect to underpayment interest or failure-to-file or failure-to-pay penalties attributable to the COVID-19 disaster period may expire soon. Filing a protective claim now (if the statute of limitations for such claims is open) preserves the taxpayer's right to a refund should the Federal Circuit affirm the decision in Kwong or make similar rulings in other cases. The taxpayer can then perfect the claim once the appeal concludes.

Further, taxpayers currently in examination or Tax Court proceedings should explore whether a settlement carveout excluding the disaster period from interest computations is possible. In Mayronne v. Commissioner,⁹ the parties stipulated, and the Tax Court ordered, that while a deficiency and additions to tax were due, interest would be assessed as provided by law except for the period beginning April 18, 2022, and ending July 10, 2023, the tail end of the COVID-19 mandatory postponement period. The IRS has declined to include similar carveout language in other settlement agreements, but it remains unclear whether the agency's position reflects an overarching policy or a case-by-case negotiation posture. Finally, taxpayers who have not yet paid interest accrued during the disaster period may choose to take a position that the interest lacks a legal basis and contest it through collection due process hearings if the IRS initiates collection.

Conclusion

It is clear that the IRS will not agree to broad mandatory relief under I.R.C. Section 7508A(d) for the COVID-19 disaster period without a fight. Taxpayers who believe they hold valid claims for refunds of underpayment interest or penalties accrued between January 20, 2020, and July 10, 2023, should still consider acting promptly to preserve their rights throughout this next phase of the dispute over I.R.C. Section 7508A.

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If you have any questions about this Legal Briefing, please feel free to contact any of the attorneys listed or the Eversheds Sutherland attorney with whom you regularly work.

_{1 Kwong v. United States, 179 Fed. Cl. 382 (2025).
2 Abdo v. Commissioner, 162 T.C. 148 (2024).
3 Abdo v. Commissioner, AOD 2026-01 (June 1, 2026).
4 C. Bradford & J. O’Brien, The Price of Patience: A Roadmap for COVID-Era Interest Relief, TAXNOTES FEDERAL (May 13, 2026), available at https://www.taxnotes.com/tax-notes-today-federal/collections/price-patience-roadmap-covid-era-interest-relief/2026/05/13/7w3t7. 
5 Stafford Disaster Relief and Emergency Assistance Act, Pub. L. No. 93-288 as amended, 42 U.S.C. §§ 5121 et seq.
6 See, e.g., President Donald J. Trump Approves New York Disaster Declaration, WHITEHOUSE.GOV (Mar. 20, 2020) (“Today, President Donald J. Trump declared that a major disaster exists in the State of New York and ordered Federal assistance to supplement State, tribal, and local recovery efforts in the areas affected by the Coronavirus Disease 2019 (COVID-19) pandemic beginning on January 20, 2020, and continuing.”); see also Major Disaster Declarations and Related Determinations: Expiration of COVID-19-Related Measures, 88 Fed. Reg. 8884 (Feb. 10, 2023) (“"[T]he incident period for all COVID-19 major disaster declarations…will close effective May 11, 2023.").
7 Infrastructure Investment and Jobs Act, Pub. L. No. 117-58, 135 Stat. 429 (2021).
8 See Internal Revenue Manual (IRM) 36.3.11.1 (Mar. 14, 2013).
9 Mayronne v. Commissioner, No. 1984-24 (T.C. Mar. 13, 2026).}