Kwong v. United States: The Bigger Picture — ERC, Collections, and What Comes Next

Video Breakdown Series — Part 4 of 5

Parts 1 through 3 of our Kwong series covered the basics: what the ruling says, who qualifies, and how to file a protective refund claim. In this installment, we zoom out and look at the broader implications — the ways this single court decision could ripple across multiple areas of tax law that affect businesses, ERC claimants, taxpayers in active collections, and anyone watching how the IRS handles disaster relief going forward.

The Employee Retention Credit Connection

One of the most significant and actively discussed implications of Kwong involves the Employee Retention Credit — the pandemic-era payroll tax credit that businesses could claim for retaining employees during COVID-19.

The ERC situation has been complicated for years. Many businesses filed amended payroll tax returns (Form 941-X) to claim the credit, but the IRS imposed a moratorium on processing those claims starting September 2023 due to concerns about widespread fraud. Thousands of legitimate claims sat in limbo while the IRS reviewed them.

Meanwhile, many businesses that properly followed IRS guidance were required to reduce their wage deductions on their income tax returns to correspond to the ERC they expected to receive — even though the credit hadn’t actually been paid yet. This created situations where businesses owed income tax on wages they’d deducted but couldn’t yet offset with the credit, resulting in interest and penalties on the gap.

Here’s where Kwong becomes relevant: if the statutory deadlines for filing the Form 941 employment tax returns were legally suspended until July 10, 2023, under Section 7508A(d), then the deadlines for claiming the ERC on those returns may also have been extended. Some tax practitioners are arguing this means the statute of limitations for ERC refund claims — which many believed had closed — may actually extend as far as July 2026 or even into 2027 under the Kwong theory.

This is not settled law. The government is expected to fight it vigorously. But for businesses that believed they had missed the ERC window, Kwong has opened a conversation that wasn’t possible before November 2025.

Implications for Taxpayers in Active IRS Collections

If you currently owe the IRS and are in an installment agreement, a currently not collectible status, or simply ignoring collection notices, Kwong has a specific implication you need to understand.

The IRS may be attempting to collect penalties and interest from you that were assessed during the COVID disaster period — charges that, under the Kwong theory, may have been legally invalid from the moment they were assessed. If that’s the case, a portion of what the IRS says you owe may simply not be collectible under current law.

This changes your negotiating position. An installment agreement based on a balance that includes improperly assessed penalties is an agreement to pay more than you legally owe. An Offer in Compromise calculated on a balance that includes invalid interest is one that may be settled for less than the IRS’s current demand.

Before finalizing any collection resolution — especially for tax years in the 2019–2022 range — it’s worth having your account reviewed through the lens of Kwong. The Brightside Tax Relief team is doing exactly this for clients right now, specifically looking at whether any portion of a currently-owed balance consists of charges that may be invalid under the Kwong theory.

The Loper Bright Connection: Why Agency Deference Matters

One aspect of the Kwong ruling that deserves specific attention is how the court got to its conclusion. The court didn’t just interpret Section 7508A differently from the IRS — it explicitly rejected the IRS’s own regulation on the topic.

A Treasury Regulation had stated that the mandatory 60-day postponement period could never result in more than one year being disregarded. In plain English: the IRS had written a rule saying that even if the COVID disaster lasted more than a year, the mandatory deadline extension under Section 7508A was capped at one year.

The Kwong court said that regulation was wrong — that it “misread” the statute — and that the plain language of the law controlled. The court cited the Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo, which overturned decades of deference to agency interpretations of ambiguous statutes (known as Chevron deference).

This is a big deal beyond just Kwong. It signals that courts are now more willing to look past IRS and Treasury regulations and go directly to the statutory text when those regulations seem to contradict what Congress actually wrote. For taxpayers and tax professionals, this means IRS guidance that previously seemed authoritative may be open to challenge if it doesn’t match the plain language of the underlying statute.

Kwong may be one of the first significant post-Loper Bright tax wins for taxpayers — and it probably won’t be the last.

The Disaster-Related Extension of Deadlines Act

Shortly after Kwong was decided, Congress passed the Disaster-Related Extension of Deadlines Act, signed into law on December 26, 2025. This legislation modifies Section 7508A going forward to ensure that disaster-related postponement periods are included in the lookback period for refund claims — addressing a technical issue the Kwong court’s ruling exposed.

This new legislation is significant for a couple of reasons. First, it validates the underlying concern that Kwong identified: the existing rules created a situation where taxpayers could have their deadlines extended by a disaster declaration but then find that the extension didn’t actually help them claim refunds because of how the lookback period was calculated. Congress agreed this was a problem and fixed it.

Second, the new law applies prospectively — to future disasters — not retroactively to COVID-19. This means it doesn’t resolve the Kwong dispute directly, but it does signal that Congress at least partially endorses the policy reasoning behind the court’s decision, even if the government is appealing the specific application to COVID-19.

What the Government’s Appeal Could Mean

The government is widely expected to appeal Kwong to the U.S. Court of Appeals for the Federal Circuit. If the Federal Circuit reverses the lower court’s decision, Kwong-based refund claims would fail — and taxpayers who filed protective claims would simply not receive refunds. Their accounts would go back to showing the original assessed penalties and interest.

If the Federal Circuit affirms Kwong, the IRS would face significant pressure to begin processing refund claims — though it would likely still resist on procedural grounds and individual claims would need to be pursued through the appeals and litigation process.

If the case goes to the Supreme Court — which is possible given the magnitude of the potential revenue implications for the government — the ultimate outcome is uncertain. But the Supreme Court’s recent move in Loper Bright toward plain-text statutory interpretation, rather than agency deference, arguably favors taxpayers on the core legal question in Kwong.

The Related Case: Abdo v. Commissioner

Kwong doesn’t stand alone. In April 2024, the U.S. Tax Court issued a decision in Abdo v. Commissioner that also found Section 7508A(d) automatically extended certain Tax Court filing deadlines during the COVID disaster period. The Abdo case settled without appeal in late 2024, so it didn’t produce binding precedent — but it pointed in the same direction as Kwong.

Together, Abdo and Kwong represent a consistent judicial reading of Section 7508A that runs directly counter to the IRS’s own position. When two separate courts — the Tax Court and the Court of Federal Claims — reach the same conclusion independently, it strengthens the legal foundation for the taxpayer-favorable interpretation.

The Bottom Line of Part 4

Kwong is not just a case about one taxpayer’s refund. It’s a ruling with potential implications for ERC claimants, businesses in IRS collections, the scope of IRS regulatory authority, and how courts evaluate agency guidance in the post-Loper Bright era. The full scope of its impact won’t be known until the appeal is resolved — but the breadth of what it could affect is genuinely significant.

In Part 5 — our final installment — we’ll bring it all together: a practical summary of everything you need to know about Kwong, what actions to take, and how Brightside Tax Relief can help you evaluate and pursue your specific situation.

Call us today at 914-214-9127 or visit brightsidetaxrelief.com. This is a rapidly evolving area of tax law, and having the right team reviewing your account could make a meaningful difference.

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The information in this article is for general educational purposes only and does not constitute legal or tax advice. Kwong v. United States is subject to appeal and the legal landscape may change. Consult a qualified tax professional to evaluate your specific situation.