COVID-19 Extended Tax Deadlines Longer Than Many Realized – Houston Tax Attorneys

Taxpayers have various tax filing deadlines throughout the year. Missing one can trigger penalties, interest charges, and collection actions.

When there is a major disaster, the IRS typically grants short extensions to give affected taxpayers breathing room. During the COVID-19 pandemic, the IRS issued notices extending various tax deadlines by a few months. The agency moved the April 15, 2020 deadline to July 15, 2020, for example. Most taxpayers and tax advisors assumed these specific notices defined the full extent of available relief.

What if the law actually provided a much longer extension than the IRS provided? A recent case from the Court of Federal Claims says that is exactly what happened. In Kwong v. United States, No. 23-271T, (Fed. Cl. Nov. 25, 2025), the court held that statutory relief extended certain tax deadlines until July 2023—years beyond what the IRS had publicly announced in its COVID-19 disaster declarations.

Facts & Procedural History

The taxpayer owned and managed real estate through his business. In 2005, he bought out his co-owners and became the sole owner. As part of that transaction, he refinanced the business property. On advice from his tax attorney and accountant, he claimed a loss of over $2.3 million on his 2005 tax return. He carried that loss forward to subsequent years, including 2007, 2010, and 2011.

The IRS audited the tax return for 2005 and disallowed the loss in 2012. This resulted in additional tax liabilities for the years to which he had applied the loss. The IRS simultaneously assessed delinquency penalties for those tax years in April 2012 for the 2007 tax period and later for 2010 and 2011. The taxpayer also had penalties for tax years 2015 and 2016 related to underwithholding taxes throughout those years.

In 2020, the taxpayer filed penalty abatement requests seeking refunds of the penalties he had paid for each of the 2007, 2010, 2011, 2015, and 2016 tax years. The IRS issued notices of disallowance for his 2007, 2010, and 2011 claims in September and October 2020. The taxpayer filed his complaint to start the tax litigation in February 2023 in the U.S. Court of Federal Claims seeking refunds of the penalties for all five tax years.

The government moved for summary judgment. It argued that the claims for 2007, 2010, and 2011 were untimely because the taxpayer filed suit more than two years after the IRS denied his claims. The government also argued that the IRS had correctly assessed penalties for 2015 and 2016. The taxpayer responded that his suit was timely because of statutory extensions under COVID-19 emergency relief legislation. This defense triggered extensive briefing on whether and how the pandemic extended his deadline to file suit.

The Two-Year Deadline for Tax Refund Suits

Section 6532 of the tax code provides strict time limits for filing suit to recover taxes or penalties. It generally says that a taxpayer cannot file suit “after the expiration of 2 years from the date of mailing . . . of the disallowance of the part of the claim to which the suit or proceeding relates.” This two-year window begins when the IRS formally denies a refund claim. Miss that deadline and the courthouse doors close.

The Federal Circuit has long held that Section 6532’s deadline is jurisdictional. This means courts lack power to hear cases filed after the two-year period expires. The jurisdictional nature of the deadline prevents equitable tolling—the doctrine that allows courts to extend deadlines when extraordinary circumstances beyond a party’s control prevent timely filing. Courts cannot create extensions based on fairness or hardship.

However, jurisdictional deadlines can still be extended by statute. Section 6532 itself recognizes this possibility. The statute provides that the two-year period “shall be extended for such period as may be agreed upon in writing between the taxpayer and the Secretary.” Congress can likewise extend these deadlines through legislation addressing specific circumstances.

Section 7508A: The Disaster Relief Statute

Section 7508A gives the Secretary of the Treasury authority to postpone tax-related deadlines during disasters.

Congress enacted Section 7508A to address natural disasters that temporarily disrupt taxpayers’ ability to meet their obligations. The typical scenario involves hurricanes, floods, or wildfires. These events damage infrastructure, displace populations, and make compliance impossible for defined periods. The statute typically operates for short time periods. A hurricane makes landfall, causes destruction over several days, and the affected area begins recovery. The IRS issues a notice extending deadlines by a few months to give taxpayers time to get back on their feet.

The statute allows the Secretary to “specify a period of up to 1 year that may be disregarded” during a taxpayer’s deadline to file returns, pay taxes, or bring suit for refunds. This discretionary authority under subsection (a) lets the Secretary respond flexibly to emergencies.

The statute also includes an automatic extension provision in subsection (d). This mandatory extension applies without any action by the Secretary. Under the version in effect before November 2021, the automatic extension ran from “the earliest incident date specified in the declaration” to “the date which is 60 days after the latest incident date so specified.” Unlike the discretionary extension under subsection (a), the mandatory extension under subsection (d) contained no express time limit in the pre-2021 version.

The mandatory extension in subsection (d) historically operated in tandem with the discretionary extension. For a typical disaster, the mandatory 60-day extension might run from the disaster’s start through 60 days after its end. This might total three or four months. If taxpayers needed more time, the Secretary could exercise discretionary authority under subsection (a) to extend deadlines up to a year. This two-tier system worked well for localized, short-term emergencies. No one anticipated how it would function during a multi-year national pandemic.

How the Statute Changed in 2021

Congress amended Section 7508A in November 2021. Understanding which version applies requires careful attention to effective dates and statutory language. This proved to be the key issue in Kwong.

The original 2019 version of subsection (d) stated that the mandatory extension period ran from “the earliest incident date specified in the declaration” to “the date which is 60 days after the latest incident date so specified.” This language tied the extension’s length directly to the disaster declaration itself. If the declaration said the disaster lasted from Date A to Date B, the mandatory extension ran until 60 days after Date B. The statute imposed no cap on how long that period could last.

In November 2021, Congress amended subsection (d). The new version changed the end of the extension period from “the date which is 60 days after the latest incident date so specified” to “the date which is 60 days after the later of such earliest incident date . . . or the date such declaration was issued.” This amendment effectively capped the mandatory extension at 60 days maximum. The extension would end 60 days after either the disaster’s start or the declaration’s issuance, whichever came later.

This change matters in this case. Under the 2019 version, a disaster that lasted three years would trigger an extension that lasted three years plus 60 days. Under the 2021 version, that same disaster would trigger only a 60-day extension. The question in this case is which version applies to COVID-19?

The answer depends on when the disaster was declared. The November 2021 amendment applied only “to federally declared disasters declared after the date of enactment of this Act.” The COVID-19 disaster was declared in early 2020. Therefore, the 2019 version of Section 7508A governs COVID-19 cases. The government initially argued that the 2021 amendment should apply retroactively to COVID-19. Only after the court pressed the issue did the government concede that the amendment’s effective date provision barred retroactive application.

When Did the COVID-19 Emergency Begin and End?

On March 13, 2020, President Trump declared a nationwide emergency. On March 22, 2020, he declared California, where this taxpayer resided, a major disaster area “beginning on January 20, 2020, and continuing” due to pandemic conditions. The Federal Emergency Management Agency coordinated the response.

That phrase “beginning on January 20, 2020, and continuing” became the linchpin of the Kwong decision. The declaration established January 20, 2020 as the “earliest incident date.” But what was the “latest incident date”? The declaration said the emergency was “continuing.” This suggested no fixed end date at the time of issuance.

The pandemic emergency declaration remained in effect for over three years. On February 10, 2023, the government amended the declaration to close the incident period effective May 11, 2023. This amendment established May 11, 2023 as the “latest incident date” for purposes of Section 7508A.

Under the plain language of the 2019 statute, the mandatory extension ran from January 20, 2020 through July 10, 2023. The latter date represents 60 days after May 11, 2023. This created an extension period of roughly three and a half years. No one anticipated such a duration when Congress drafted Section 7508A.

Does “Continuing” Mean There Was No Specified End Date?

The government argued that because the initial declaration said “continuing” rather than specifying an end date, only January 20, 2020 qualified as a date “so specified” under the statute. According to this reading, both the earliest and latest incident dates were January 20, 2020. This would yield only a 60-day extension from that single date.

The Kwong court rejected this argument. The word “continuing” has meaning. If the declaration was meant to cover only January 20, 2020, it would not have added “and continuing.” The government’s choice to maintain the disaster declaration beyond January 20, 2020 demonstrated that the emergency period extended far beyond that initial date. The government kept the declaration in effect for more than three years. This active maintenance of the declaration showed that the emergency continued throughout that period.

The government relied on Abdo v. Commissioner, 162 T.C. 148 (2024), for support. In Abdo, the Tax Court addressed whether COVID-19 extended certain filing deadlines. The court held that taxpayers who filed within 60 days of January 20, 2020 had filed timely. But Abdo did not address whether the extension could last longer than 60 days. The taxpayers there had filed within the initial 60-day window. The Tax Court explicitly noted: “We need not, and therefore do not, express a view on what the outer limits of the extension period may be where a declaration omits an ending date or is extended.”

The Kwong court thus faced a question Abdo left open. The court concluded that the declaration’s use of “continuing” meant the emergency period extended as long as the declaration remained in effect. When the government amended the declaration in February 2023 to close the incident period on May 11, 2023, that date became the “latest incident date” under the statute. The mandatory extension therefore ran until 60 days after that date.

How This Applied to the Taxpayer’s Refund Suit

The taxpayer’s deadline to file suit began when the IRS denied his refund claims in September and October 2020. Under normal circumstances, he would have had until September or October 2022 to file suit. This represents the two-year period from the denial date under Section 6532. He filed in February 2023—several months after that normal deadline expired.

But the COVID-19 mandatory extension under Section 7508A lasted until July 10, 2023. Section 7508A allows affected taxpayers to “disregard” deadlines that fall within the extension period. The taxpayer’s September and October 2020 denial notices triggered deadlines that would normally expire in September and October 2022. Those expiration dates fell within the January 2020 to July 2023 extension period. Therefore, the taxpayer could disregard those deadlines until the extension period ended.

When the July 2023 extension period ended, the taxpayer’s two-year clock to file suit would have started running again. Because he filed in February 2023—well before July 2023—his suit was timely. This analysis applies regardless of whether we characterize Section 7508A as providing tolling or a postponement period. Tolling pauses the clock while postponement moves the deadline. Either characterization leads to the same result here.

The court granted summary judgment in the taxpayer’s favor on the timeliness issue for tax years 2007, 2010, and 2011. This means his refund claims for those years can proceed to address their merits. Whether he ultimately wins those refunds depends on whether the IRS properly assessed the underlying penalties. The court did not reach that question in its summary judgment decision. The parties will need to litigate the substantive penalty issues at trial or through further proceedings.

The Takeaway

The Kwong decision explains that the COVID-19 emergency extended tax deadlines far longer than the IRS’s public guidance suggested. The mandatory extension under Section 7508A’s pre-2021 version ran from January 20, 2020 through July 10, 2023. This extension applied automatically to any taxpayer affected by the declared disaster. It operated regardless of whether the IRS issued specific guidance for particular situations. The practical impact remains viable for some taxpayers even to today. By late 2025, a taxpayer seeking to invoke the July 2023 extension would need to have had a deadline fall during the COVID-19 period. They would then need to have acted quickly enough after July 2023 to file claims while their own limitations periods remained open. Most such claims have now expired through the passage of time, but those who filed during this time, even if late, may benefit. This may preserve claims the government thought time-barred.

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Stephan Dorsey

Stephan is the sports journalist for the Maple Grove Report.

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Real Estsate Construction Delays Kill Tax Deductions – Houston Tax Attorneys

Real estate investors regularly pursue new ventures that require substantial upfront investments before generating any revenue. A successful investor might purchase land for a luxury resort, spend hundreds of thousands on architectural plans and permits, and begin construction on facilities designed to serve paying customers. These early expenditures represent legitimate business development costs, incurred with the genuine expectation of future profits.

But what happens to these costs when construction defects or other problems prevent these ventures from ever opening their doors? Can expenses incurred in planning and developing be deducted as trade or business losses? The answer depends on whether the taxpayer was actually “engaged in carrying on any trade or business” when the losses occurred.

The recent Root v. Commissioner, T.C. Memo. 2025-51, case addresses when ambitious real estate projects fail before operations begin.

Facts & Procedural History

The taxpayers selling their family business in 2008. Prior to this, during the 1990s, while still running their business, the taxpayers began planning their next venture: a recreational ranch and guest lodge in Oregon.

The planned lodge would combine fishing with equestrian activities and hospitality. Beginning in 1995, the taxpayers purchased four parcels of land totaling over 90 acres, including waterways, pasture, and farmland. They invested in property improvements, including waterway restoration to enhance fishing opportunities.

In September 2000, the taxpayers contracted with an architect to design a lodge, guest wing, council house, and barn. Construction began in 2003. The scope of work included the main house, council house, and garage, with the total project representing a substantial investment in what was intended to become a commercial hospitality operation.

Problems emerged almost immediately after the lodge received its certificate of completion in May 2006. Snow and rain caused flooding, revealing serious defects in windows, roofing, and weatherproofing. By 2007, the taxpayers discovered hundreds of bats living in the walls along with rats and mice, creating foul odors throughout the structure. A forensic architect later determined that the foundation was defective and the main fireplace was structurally unsound.

County officials condemned the lodge as unsuitable for occupancy in 2010 after receiving reports of the structural defects. The lodge was eventually demolished. The taxpayers sued their contractor and architect to recover their losses. They ultimately recovered approximately $3 million through arbitration and litigation but paid approximately $4 million in legal fees.

Throughout this entire period, the lodge never hosted overnight guests. The taxpayers never obtained an innkeeper’s license, hired hospitality employees, or developed booking systems. While they did host occasional events on the property between 2002 and 2009–including television filming, fundraisers, and dog trials–none involved stays at the lodge.

The taxpayers initially filed their 2014 tax return listing the husband’s principal business as a consulting business reporting more than $300,000 in gross receipts. However, in May 2018, they filed an amended return claiming a $5 million dollar loss related to the lodge project. They carried portions of this claimed net operating loss to their 2017 and 2018 returns, claiming carryovers of $3 million each year. The IRS examined the tax returns and issued a IRS Notice of Deficiency disallowing the net operating loss carryovers in full and imposing accuracy-related penalties for both years.

Trade or Business Requirements Under Section 165

Section 165(c)(1) allows individual taxpayers to deduct losses “incurred in a trade or business.” This requires the taxpayer actually be engaged in a trade or business when the loss occurs. This is different than the rules under subsection (2), which does not have a trade or business requirement.

The distinction between business losses under Section 165(c)(1) and investment losses under Section 165(c)(2) has significant implications for tax treatment and carryover rules. Business losses (under subsection (1)) can generate net operating losses that may be carried back or forward to offset income in other years, while investment losses (under subsection (2)) are generally limited to offsetting capital gains and may be subject to different timing restrictions. Additionally, business losses (under subsection (1)) aren’t subject to the investment interest limitations that can restrict the deductibility of losses from investment activities. Understanding these distinctions becomes particularly important for real estate activities and rental properties that may qualify for special tax benefits like the Section 199A deduction.

Despite these consequences, neither the tax code nor regulations define the phrase “trade or business.” One has to turn to the court cases for the definition. In Commissioner v. Groetzinger, 480 U.S. 23 (1987), the Supreme Court said that determining trade or business status requires examining all facts and circumstances in each case. Courts apply consistent standards across different code sections, including Section 162(a) for business expense deductions and Section 165(c)(1) for business loss deductions.

These court cases start with the concept of trade or business as something that extends beyond simple profit-seeking activities. Many taxpayers engage in profit-motivated transactions that don’t rise to trade or business level.

The courts have developed a three-factor test for establishing trade or business status. First, the taxpayer must undertake the activity with genuine profit intent rather than personal or investment motives. Second, the taxpayer must be regularly and actively engaged in the activity, demonstrating continuity and regularity rather than sporadic involvement. Third, the taxpayer’s business activities must have actually commenced, meaning the business has begun functioning as a going concern.

This third factor often proves most challenging in cases involving failed or abandoned ventures. For this factor, the courts distinguish between planning and preparation activities–which don’t constitute trade or business operations–and actual business activities that do qualify for trade or business treatment.

When Do Business Activities Actually Begin?

The leading court case for establishing when business operations commence is Richmond Television Corp. v. United States, 345 F.2d 901 (4th Cir. 1965).

In Richmond, the Fourth Circuit held that “even though a taxpayer has made a firm decision to enter into business and over a considerable period of time spent money in preparation for entering that business, he still has not ‘engaged in carrying on any trade or business’ until such time as the business has begun to function as a going concern and performed those activities for which it was organized.”

This standard requires more than research, investigation, or extensive preparation. The business must actually engage in the activities for which it was designed, even if those activities don’t immediately generate revenue or profits. A business can qualify as operational while losing money, provided it’s performing its intended functions and holding itself out to serve customers.

The distinction between pre-opening expenses and business operations becomes particularly important for hospitality ventures like hotels, restaurants, and lodges. These businesses typically require substantial investments in facilities, equipment, and infrastructure before serving their first customer.

Courts analyze whether the business has crossed the threshold from preparation into operations by examining specific operational indicators. Does the business have systems for accepting customers? Has it obtained necessary licenses and permits? Does it have employees or infrastructure capable of delivering services? Has it begun marketing to potential customers or holding itself out as available for business?

The Lodge Project Was Not a Trade or Business

In the present case, the U.S. Tax Court found that the taxpayers’ lodge venture never crossed the line from preparation into actual business operations. Despite substantial investments exceeding $5 million and genuine business intentions, the lodge failed to meet the Richmond Television standard requiring that the business “function as a going concern and perform those activities for which it was organized.”

The lodge never performed its core hospitality function of housing paying guests. The taxpayers themselves acknowledged that the lodge was never in a condition to provide lodging for paying customers. Beyond the construction defects that ultimately led to condemnation, the venture lacked basic operational infrastructure. There was no booking system for accepting reservations, no website for marketing services, no revenue processing capabilities, and no customer service procedures. The taxpayers never obtained the required innkeeper’s license or hired hospitality staff.

The court systematically rejected each of the taxpayers’ proposed business commencement dates. The 1995 land purchase couldn’t establish a hospitality business when no lodging facilities existed. Construction beginning in 2003 represented preparation rather than operations since a lodge cannot house guests while under construction. Even after construction was completed in 2006, the lodge never opened to paying customers. A single open house event in 2006 was insufficient because promotional activities don’t constitute carrying on a trade or business when the facility remains incapable of generating revenue.

The conditional use permit obtained in 2009 also failed to demonstrate business commencement. While permits may be necessary for business operations, obtaining permits alone doesn’t prove that operations have begun. The permit contemplated additional construction that never occurred, and the existing lodge remained unsuitable for occupancy.

The court’s analysis was strengthened by comparing this case to Todd v. Commissioner, 77 T.C. 246 (1981), where a similar IRS audit revealed that abandoned real estate development plans don’t constitute trade or business activities. In Todd, a taxpayer’s “plans to enter the business of renting apartments were never realized,” making the resulting losses from abandoned plans non-deductible as business expenses. The policy underlying net operating loss provisions – allowing businesses to “set off their lean years against their lush years” – doesn’t apply when there were no operational years at all.

The taxpayers also failed the regular and active engagement test. The occasional events hosted on the property were too sporadic and disconnected from hospitality operations to establish ongoing business activity. During the construction period, the taxpayers were simultaneously operating their primary fruit processing business, and after selling that business, one spouse continued leading another company. By the time they might have focused on the lodge, construction defects had made the facility uninhabitable, shifting their attention litation and remediation rather than business development.

The Takeaway

The decision helps explain when activities become trade or business operations for tax purposes. The case shows that substantial investments, genuine business intentions, and professional development don’t create trade or business status when ventures never become operational. Construction defects, permit delays, and market conditions that prevent business opening don’t transform preparation costs into business expenses, regardless of amounts involved or underlying business legitimacy. Taxpayers contemplating similar ventures should focus on establishing operational capabilities as early as possible in development processes. While construction problems may prevent full operations, having booking systems, customer infrastructure, and revenue collection mechanisms might strengthen arguments that trade or business activity has commenced.