Blog · 16 October 2026

Protective Refund Claim: What the Kwong Appeal Means for US CPA Firms

By Keshav Bansal, CA

A protective refund claim is how a taxpayer keeps a refund alive while a court, a regulation or Congress decides whether the money is owed. The government’s appeal in Kwong v. United States is a timely reminder of why that matters. As Withum’s Marcus Dyer reported on October 12, 2026, the government filed its Federal Circuit brief on September 16, 2026 asking the court to reverse the 2025 Court of Federal Claims ruling that stretched the COVID-19 disaster postponement into a multi-year window. If your firm has refund positions that depend on that window, a protective claim for refund, filed while the normal deadline is still open, may be the safer route.

What the government now argues in Kwong

We covered the Court of Federal Claims theory, under which the mandatory §7508A(d) postponement ran from January 20, 2020 through July 10, 2023, in our Singh informal refund claim article. What is new is the government’s side of the case. According to Withum’s summary of the brief:

• Incident date, not incident period. The government argues §7508A(d) gives only a “strictly limited, mandatory 60-day postponement” measured from the “incident date” in the disaster declaration. With a January 20 incident date, that period would end March 20, 2020. It also notes that Congress used “incident period” in other disaster legislation but “incident date” here, and says that difference was intentional.
• Administrative history. The government points to the many specific notices Treasury and the IRS issued during the pandemic as evidence that §7508A(d) was never meant to be an automatic, multi-year suspension.
• A California fallback. If the continuing nature of the disaster must count, the government says March 22, 2020 should be the incident date for California; Terry W. Kwong was a California taxpayer. The 60 days would then end May 21, 2020.
• A one-year backstop. Even a broader reading, it argues, cannot produce an unlimited postponement, pointing to the one-year limit tied to §7508A(a) and related Treasury regulations. The statute (Cornell LII) lets the Secretary specify “a period of up to 1 year” that may be disregarded.
• Cost. The government argues the lower court’s reading could affect tens of millions of taxpayers and cost the Treasury tens of billions of dollars in refund claims.

Kwong’s claims covered tax years 2007, 2010 and 2011, and he sued on February 23, 2023. The government wants the claims dismissed as untimely. The case is ongoing, and nobody can predict how the Federal Circuit will rule.

Why this makes long-postponement refund positions uncertain

Any refund claim or refund suit that is timely only because of the multi-year COVID postponement would lose that argument if the Federal Circuit reverses. For a client, a refund that looks secure on a spreadsheet may really be a bet on litigation.

The practical lesson is to avoid relying on a disputed postponement when a normal deadline is still available. Under §6511(a), a refund claim generally must be filed within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever expires later. If a client’s position depends on any unsettled issue, file within that window and treat the claim as protective.

What the IRS treats as a protective claim

The Internal Revenue Manual’s claims chapter (IRM 21.5.3, revised September 4, 2026, effective October 1, 2026) says protective claims “may be informal claims, formal claims, or amended returns for credit or refund” normally based on expected changes in a current regulation, pending legislation or current litigation. It adds that “any claim based on a pending court case or decision is considered a Protective Claim,” and that such claims “are filed to protect the claimant’s right to recover internal revenue tax before the expiration of the statute of limitations.”

Under IRM 21.5.3.4.7.3.1, a processable protective claim:

• must have a written component;
• must identify and describe the contingencies affecting the claim;
• must be “sufficiently clear and definite to alert the IRS as to the essential nature of the claim”; and
• must identify a specific year or years for which a refund is requested.

The IRM also tells staff to screen protective claims for statute timeliness and signatures. A claim can be identified by the words “protective claim” or similar language about a regulation or pending litigation, so label it clearly. One warning: if the claim is for $1 or some other nominal amount when there is no real contingency and the overpayment can be determined accurately, the IRM directs staff to reject it under no-consideration procedures. Don’t use a placeholder amount to dodge the work of computing a refund you can already compute.

How to build a protective claim file

• Name the contingency. For a Kwong-dependent position, identify the case and the issue: whether the §7508A(d) postponement extends beyond the 60 days the government argues for.
• List each tax year and the tax involved. The IRM requires specific years.
• Explain the basis and compute the amount where you can.
• File before the §6511 deadline, not after. A protective claim preserves rights; it does not revive a period that has already closed.
• Keep proof of filing and diary the litigation. Watch for the Federal Circuit decision and any IRS statement that follows.

The IRM shows how protective claims can end. After the Supreme Court dismissed California v. Texas on June 17, 2021, the IRS did not allow the Affordable Care Act protective claims it had held, and announced the disposition in a general IRS statement instead of mailing disallowance notices to every claimant. Clients should know a protective claim is a hedge, not a promised refund.

The second clock: refund suits under §6532

Filing a claim starts only half the process. Kwong itself is a dispute over the second clock, the period for suing. Section 6532(a)(1) bars suit until 6 months after the claim is filed, unless the IRS decides it sooner, and after 2 years from the certified- or registered-mail notice of disallowance. Three details are easy to miss:

• The 2-year period can be extended only by written agreement between the taxpayer and the IRS (§6532(a)(2)).
• If the taxpayer files a written waiver of the notice of disallowance, the 2 years start on the date the waiver is filed (§6532(a)(3)).
• IRS reconsideration after the notice is mailed does not extend the time to sue (§6532(a)(4)).

Diary the disallowance date the day the letter arrives and don’t count on a disaster postponement to rescue the suit deadline. For the deficiency side, compare our Lindsey 90-day petition article, and for current disaster workflows see our §7508A disaster relief guide.

Where Tax Brew fits

Protective claims depend on organized records: payment dates, filing dates, notices and year-by-year computations. Tax Brew provides bookkeeping, cleanup and tax prep support for US CPA firms, including workpapers and deadline schedules your team can review, with the first 20 hours free for qualifying engagements. Your team keeps the technical judgment, representation and sign-off. See our services, or email info@taxbrewglobal.com.

Sources: Marcus Dyer, Withum, “Government’s Kwong Appeal Explains Its Position on Broad COVID-19 Refund Claims” (Oct. 12, 2026); IRM 21.5.3, General Claims Procedures (rev. Sept. 4, 2026), including 21.5.3.4.7.3; 26 U.S.C. §6532, §6511 and §7508A (Cornell LII). General information, not tax or legal advice.