The recent Court of Federal Claims ruling in Kwong vs. U.S. may give taxpayers a refund opportunity on penalties and/or interest resulting from underpayments, late filings or late payments during the COVID-19 pandemic.
While it is still too early to know how this will ultimately play out in the court system in the long-term, taxpayers potentially impacted may need to file refund claims before a final resolution so they can maintain the ability to recover these amounts.
The court ruled that under the version of Section 7508A(d) in effect during the pandemic, tax deadlines were postponed until 60 days after the end of the federally declared disaster. As a result, the court determined the postponement period for COVID-19 ran from January 20, 2020, through July 10, 2023. Thus, any tax filings and payment deadlines during this postponement period would be postponed until July 11, 2023.
Taxpayers may be entitled to recover interest and penalty amounts paid that were incurred during the postponement period. However, the statute of limitations to file refund claims generally expires on the later of the following dates:
Taxpayers must file any refund claims within these timelines to potentially recover any funds paid. Note, this opportunity is not limited to only the tax years during the postponement window but could apply to any amounts accrued during that period, even if related to earlier years. For example, Western Digital has filed suit seeking a refund of over $20 million in interest charges that accrued during the postponement period related to an audit of its 2008 return that was resolved in 2023. In that case, Western Digital owed an additional tax for its 2008 tax year of $53.6 million and was charged interest of approximately $53 million. The amount of $20.8 million was accrued during the postponement period and therefore could be subject to refund according to this court ruling.
The ultimate impact/opportunity is still unknown as this ruling likely will be appealed. However, taxpayers should consider options to protect their ability to claim a refund pending the ultimate resolution. As such, time could be of the essence, so it’s important to work with your tax advisers to consider any potential impact and action appropriate for your situation.
We will continue to monitor this situation and provide updates as the litigation and the refund claim process evolves.
Contact Robert Venables or a member of your service team to discuss this topic further.
In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.