Tax Court Narrows Scope of COVID-19 Era Penalty Refunds

A recent order from the U.S. Tax Court in *Bowen v. Commissioner* may significantly curtail the ability of taxpayers to recover certain penalties and interest assessed during the COVID-19 pandemic. This new development is creating a stir among tax practitioners, as it suggests a more restrictive interpretation of relief compared to the broader expectations set by the *Kwong v. United States* decision.

The context for this situation stems from the U.S. Court of Federal Claims' landmark ruling in *Kwong v. United States* in late 2025. In that case, the court determined that the federal COVID-19 disaster declaration automatically suspended all federal tax deadlines nationwide from January 20, 2020, through July 10, 2023. This decision effectively invalidated billions of dollars in late penalties and interest assessed by the Internal Revenue Service (IRS) during that 3.5-year window, offering a significant refund opportunity for taxpayers. The court interpreted Internal Revenue Code (IRC) Section 7508A(d) as providing a mandatory, self-executing suspension of deadlines during presidentially declared disasters.

However, the recent *Bowen v. Commissioner* order redefines the scope of this relief. The Tax Court held that only *deadline-related penalties*—such as failure-to-file and failure-to-pay penalties—qualify for refunds under IRC Section 7508A. The ruling specifically excludes *accuracy-related penalties* stemming from underreporting tax from this relief. This distinction is crucial for COVID-era penalty claims and significantly limits the general expectation of refunds generated by the *Kwong* case.

The IRS has appealed the *Kwong* decision, and while this appellate process unfolds, it is critical for taxpayers to take action to preserve their legal rights. Millions of U.S. taxpayers may be eligible for a refund or abatement of late-filing penalties, late-payment penalties, estimated tax penalties, and related underpayment interest for tax years 2019 through 2022, with deadlines falling between January 20, 2020, and July 10, 2023. However, in light of the *Bowen* ruling, accuracy-related penalties are now explicitly excluded.

Tax professionals and advisors are urging taxpayers to file protective refund claims by July 10, 2026. This deadline is essential to freeze the statute of limitations and secure potential future claims while the litigation proceeds through the appellate courts. Experts anticipate that the final resolution of these issues, which may involve the Courts of Appeals and potentially the Supreme Court, could take several years. Therefore, filing a protective claim by the specified deadline is a vital step for taxpayers seeking to preserve their rights.