Penalties get the headlines, but underpayment and overpayment interest may hold the largest, and least-settled, recovery.
New here? Start with our overview, Reclaim COVID-Era IRS Penalties: The Abdo & Kwong Rulings, then come back for this closer look at the interest question.
Most coverage of the Abdo and Kwong decisions focuses on penalties, the failure-to-file and failure-to-pay charges tied to deadlines during the COVID-19 disaster period. But many tax practitioners believe the larger dollars, and the harder fight, lie in interest. Here is why interest deserves its own analysis.
Why "disregarding" a period reaches interest, not just deadlines
The statute at issue, Section 7508A, does not merely move filing dates. The discretionary version of the rule expressly reaches the amount of interest, penalties, and additions to tax for the covered period, and the mandatory COVID provision says the disaster period is to be "disregarded in the same manner." In plain terms: if the period must be disregarded, the argument goes, then interest that accrued during it should not stand either.
This is not a brand-new idea. It traces back decades. Wartime relief in the 1940s, and the combat-zone rules still on the books today, suspend the running of interest and penalties during the protected period, not just filing deadlines. That long history is a central reason practitioners argue "disregarded" periods switch off monetary accruals as well.
Two interest arguments, one strong, one aggressive
The Strong Claim
Interest that accrued on a tax liability whose payment deadline fell within the COVID period (January 20, 2020 through July 10, 2023) may have to be suspended during the disregarded period. This is the cleaner argument because the statute plainly reaches interest.
The Aggressive Claim
Interest on liabilities that were already due before January 20, 2020 might also stop during the disaster period. This relies on the broad statutory text and the historical treatment of disregarded periods, but the IRS has a regulation, with an on-point example, treating pre-disaster balances as continuing to accrue interest. Expect resistance here.
Don't forget interest the IRS may owe you
Interest runs both directions. Through a chain of cross-references, the same disaster-relief framework may switch off limitations that normally reduce the overpayment interest the IRS pays taxpayers on refunds. The Internal Revenue Manual itself recognizes that overpayment interest may be required during disaster postponement periods. A putative class action, Fleisher v. United States (filed in the Southern District of New York in February 2026), is now seeking overpayment interest for the full COVID period, a sign of how live this issue is.
Status: unsettled. The interest arguments, especially on pre-2020 balances and overpayment interest, are the subject of pending litigation in the Tax Court and the Court of Federal Claims. They are promising and potentially high-value, but they are exactly the issues the IRS is most likely to contest.
Why this still argues for filing now
Because interest claims are both the largest in potential value and the least settled, they are the ones most likely to be lost by waiting. A protective claim filed before July 10, 2026 preserves your position while the courts sort out the open questions. You do not have to win the legal debate today to keep your seat at the table.
How AnidjarLaw Can Help
Led by Michael A. Anidjar, Esq., an attorney who is also a CPA and holds an LL.M. in Taxation, our office can pull and review your IRS account transcripts, identify amounts tied to the COVID-19 period, estimate your potential recovery, and prepare and file a protective refund or abatement claim before the July 10, 2026 deadline. If the IRS denies or limits a claim, we can advise on protest, Appeals, or litigation.
Recover Your COVID-Era IRS Interest
The July 10, 2026 deadline is approaching. Let our experienced tax attorneys review your IRS accounts and identify recoverable underpayment or overpayment interest before time runs out.
CONTACT US NOWDisclaimer: This article is provided for general informational purposes only and is not legal or tax advice. The law in this area is developing and the IRS may contest or appeal these claims; outcomes depend on each taxpayer's specific facts. Reading this article does not create an attorney-client relationship. AnidjarLaw is a South Florida firm based in Hollywood, Broward County. Consult a qualified tax professional about your situation. Attorney advertising.
