Abdo v. Commissioner and Kwong v. US — What the Rulings Mean for COVID Tax Penalty Refund

reading time: 16 minute(s)

The IRS offered automatic penalty relief to millions of taxpayers during the COVID-19 pandemic. But that program had a window, and once it closed, taxpayers who missed it found themselves navigating the IRS’s standard denial process with little recourse — or so it seemed. 

Two recent court rulings, Abdo v. Commissioner and Kwong v. United States, challenged the IRS’s position on those denied claims. Both courts sided with the taxpayers. Here’s what happened in each case, why the outcomes matter, and what taxpayers with outstanding COVID-era penalties should know before the July 10, 2026, deadline.

A Quick Recap of the Relief Program

In August 2022, the IRS issued Notice 2022-36, which granted automatic relief from failure-to-file and failure-to-pay penalties for tax years 2019 and 2020. The rationale was straightforward: pandemic-era disruptions had created a massive backlog at the IRS, and millions of taxpayers and practitioners were struggling to meet normal filing deadlines through no fault of their own.

Here’s what the program covered:

• Who it helped: Taxpayers with failure-to-file or failure-to-pay penalties on 2019 and 2020 returns who filed within the designated window
  
• How it worked: Relief was automatic. No separate request, no phone call to the IRS required
  
• Where it fell short: Taxpayers who filed late, missed the covered years, or weren’t aware of the program were denied when they came forward later

Many of those denied taxpayers had genuinely valid grounds for relief — reasonable cause, first-time abatement eligibility, or circumstances directly tied to the pandemic. The IRS, however, leaned on the closure of the program as justification for denial. That’s where the courts stepped in.

What Abdo v. Commissioner Decided

In Abdo v. Commissioner, the taxpayer filed outside the automatic relief window and submitted a penalty refund request through Form 843. The IRS denied the claim. The taxpayer took the case to the U.S. Tax Court — and won.

The court’s core finding:

• The denial was an abuse of discretion. The IRS cannot use program expiration as a blanket reason to deny penalty abatement claims
  
• Abatement rights survive program closure. A taxpayer’s eligibility for relief under reasonable cause or other standard criteria exists independently of any IRS notice or program
  
• Individual review is required. The IRS must evaluate each claim on its own merits — including good faith, reasonable cause, and compliance history

What Abdo directly rejects is the IRS’s treatment of the expiration of Notice 2022-36 as a hard stop. Program timing and abatement eligibility are two separate questions. Conflating them is not a legitimate basis for denial, and the tax court made that explicit.

What Kwong v. United States Added

Kwong v. United States was decided at the federal district court level and arrived at a similar conclusion. The taxpayer had paid penalties during the COVID period and filed for a refund. The IRS refused. The federal district court ruled in the taxpayer’s favor.

Key findings from Kwong:

• First-time abatement and reasonable cause remain valid even after formal IRS programs have ended
  
• Program closure is not a catch-all justification. The IRS cannot dismiss claims that meet longstanding abatement standards simply because a specific relief notice has expired
  
• Courts will hold the IRS accountable. The ruling signals judicial willingness to scrutinize post-program denials, not just accept them

Where Kwong strengthens Abdo is in the venue. A tax court ruling and a federal district court ruling pointing in the same direction carry more combined weight than either ruling alone. Together, they reflect a consistent judicial posture: COVID-era penalty claims deserve individual evaluation, and blanket denials tied to program timing will not hold up under judicial scrutiny.

What This Means for Taxpayers Now

These rulings don’t generate automatic refunds, and they don’t extend the deadline. Taxpayers still need to file Form 843 to formally request a penalty refund. But the legal environment for those claims is meaningfully stronger now. Here’s what to keep in mind:

• The July 10, 2026, deadline is firm. Penalty refund requests tied to the COVID disaster window, which ran from January 20, 2020, through July 10, 2023, must be submitted by this date. Missing it forfeits the claim regardless of how strong the underlying argument may be.
  
• Covered penalties include failure-to-file and failure-to-pay on returns for tax years 2020 and 2021 that fall within the disaster window.
  
• The IRS can still deny claims — but Abdo and Kwong give taxpayers a clear legal basis to challenge those denials, particularly where the IRS relies on program expiration rather than the merits of the claim.
  
• Reasonable cause and first-time abatement arguments carry more weight now. If a taxpayer can demonstrate that their failure to file or pay was tied to pandemic-related disruption, illness, or reliance on a tax professional, courts have signaled that the IRS must engage with those arguments substantively.
  
• Documentation is critical. A well-supported Form 843 filing with clear timelines, supporting records, and a direct connection to pandemic-related circumstances is more likely to survive IRS scrutiny and, if necessary, judicial review.

Final Thought

Abdo v. Commissioner and Kwong v. United States don’t reopen the IRS’s automatic relief program or shift the July 10, 2026, deadline. What they do is clarify something important: the end of a relief program is not the end of a taxpayer’s rights. 

For taxpayers who are unsure whether they qualify, TaxBandits has partnered with PenaltyBack to help review COVID-era penalty refund eligibility and support eligible taxpayers through the refund claim process. With the deadline approaching, now is the time to check whether a refund opportunity may still be available.