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Tax Refunds

Is your ERC claim protected? Keep an eye on litigation deadlines

by Akiva B. Ungar, Samuel F. Hamer and Edward L. Froelich | Mar 13, 2026 | Court Procedure Matters, IRS Appeals, IRS Guidance, Tax Refunds, Trial Courts

In February 2026, the Internal Revenue Service (IRS) announced that, as of December 31, 2025, it had closed all non-examined Employee Retention Credit (ERC) claims. This development could compel businesses to pursue litigation to secure their ERC refunds. In its announcement, the IRS also noted that approximately 41,000 claims remain under IRS examination or appeal.

The IRS’s announcement brings renewed focus to a risk we have been highlighting for some time: Statutes of limitation can quietly extinguish otherwise valid refund claims. As discussed in our article in Bloomberg on how to litigate and resolve ERC claims, administrative delay does not eliminate judicial deadlines. For taxpayers whose claims have been formally disallowed, Internal Revenue Code Section 6532(a) provides only two years to file a refund suit. A protest to the IRS Independent Office of Appeals (IRS Appeals) does not suspend that deadline. Without filing suit or obtaining a written extension (Form 907), the right to a refund can be permanently lost.

For taxpayers with ERC claims that are pending without action (i.e., those described in the IRS’s announcement), the statute of limitations analysis is more complex. Some courts have dismissed taxpayer suits that were filed more than six and a half years from the time the claim arose.[1] Under the logic of these cases, there may be a six-and-a-half-year limit in effect from the date a refund claim is filed – the six months a taxpayer must wait before filing a refund suit plus six years during which the government is susceptible to suit under a general statute of limitations on civil claims against the government (31 U.S.C. § 3702(b)). For ERC claims submitted in 2020, the end of this possibly applicable six-and-a-half-year period is quickly approaching. To the extent a court will apply this limitation, a taxpayer with an ERC refund claim may be barred from suit even without a formal disallowance by the IRS.

The message for businesses is consistent with our earlier guidance: Protecting the right to an ERC refund requires a proactive strategy. Taxpayers must identify which limitations periods apply to their claims, manage calendar critical deadlines, and evaluate whether protective litigation is necessary to preserve their potential refunds. Businesses facing challenged, delayed, or disallowed ERC claims should evaluate their statute posture urgently. Our tax controversy & litigation team continues to advise clients on navigating ERC audits, IRS Appeals proceedings, and refund litigation to ensure procedural missteps do not foreclose recovery.

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[1] See Wagenet v. United States, No. CV 08-01234, 2009 WL 4895363, at *5 (C.D. Cal. Sept. 14, 2009) (dismissing tax refund action as filed outside the six-year statute). See also Bowman Transp., Inc. v. United States, 220 Ct. Cl. 36, 40–41 (1979) (interpreting 28 U.S.C. § 2501 and explaining that “[d]espite the fact that the carrier has only two years from the date on which the refund claim is expressly disallowed or apparently the regular six-year period of limitations contained in 28 U.S.C. § [...]

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Refund claims gain national attention: COVID-19 disaster period may eliminate underpayment interest and penalties

by Akiva B. Ungar and Samuel F. Hamer | Feb 25, 2026 | Penalties, Tax Refunds

Taxpayers that paid underpayment interest or failure-to-file or failure-to-pay penalties between January 20, 2020, and July 10, 2023, may have viable refund claims. In some cases, the potential recoveries are substantial, but refund statutes of limitation are running and may expire on a rolling basis. National attention has accelerated around this issue, including a recent Wall Street Journal article quoting McDermott Will & Schulte Tax Controversy Partner Shawn O’Brien. O’Brien observed that “[t]here’s potentially a sizable number” of taxpayers who still have opportunities available in seeking refunds and amending tax returns to get money back. However, he also noted, “[e]very day that goes by, it would be a missed opportunity.”

In our prior coverage, we discussed the US Court of Federal Claims’ decision in Kwong v. United States, in which it held that the 2019 version of Internal Revenue Code § 7508A applied to the COVID-19 federally declared disaster, resulting in a mandatory postponement period until the end of that disaster (plus 60 days). Under Kwong, federal income, estate, gift, employment, and excise tax payment deadlines falling within the disaster period were effectively extended to July 10, 2023. Because underpayment interest and certain penalties run from the payment due date, a postponement would negate the accrual of interest and penalties during the disaster period.

Taxpayers potentially eligible for refunds include those that:

Paid underpayment interest that accrued between January 2020 and July 2023 (the disaster period)
Entered installment agreements during the disaster period and paid interest that accrued on those installment payments
Incurred failure-to-file or failure-to-pay penalties that accrued during the disaster period
Made estimated tax adjustments resulting in interest assessments
Are currently under Internal Revenue Service examination where interest computations are at issue.

Given the amounts publicly reported in pending cases, even a partial reduction of assessed interest may result in meaningful recoveries.

IRS roundup: February 9 – February 17, 2026

by Matthew J. Blaney, Suzanne Golshanara and Edward L. Froelich | Feb 24, 2026 | IRS Guidance, Penalties, Tax Reform, Tax Refunds

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for February 9, 2026 – February 17, 2026.

IRS guidance

February 9, 2026: The IRS issued Revenue Procedure 2026-13, providing discount factors for insurance companies to compute Section 846 discounted unpaid losses and recoverable Section 832 discounted estimated salvage for the 2025 accident year. This revenue procedure also provides discount factors to be used in tax years beginning in 2025 for losses incurred in the 2024 accident year and earlier accident years. Discount factors for tax years prior to 2025 were previously provided in Revenue Procedure 2025-15 and Revenue Procedure 2023-10.

February 12, 2026: The IRS issued Notice 2026-15, describing interim guidance on restrictions for certain energy credits related to the status of, and sourcing from, a prohibited foreign entity (PFE). These restrictions were enacted by Public Law 119- 21, 139 Stat. 72 (July 4, 2025) and provide:

Descriptions of rules the US Department of the Treasury (Treasury) and the IRS intend to provide in proposed regulations regarding material assistance from a PFE.
Descriptions of the Sections 45X, 45Y, and 48E interim safe harbor guidance for determining a qualified facility’s, energy storage technology’s, or eligible component’s material assistance cost ratio related to determining whether there was material assistance from a PFE.
PFE restrictions that the Treasury and the IRS will include in forthcoming proposed regulations.
A glossary of defined terms, a request for comments, and guidance on substantiation and taxpayer ability to rely on guidance provided in Sections 3 – 5 of the notice.

February 17, 2026: The IRS released Internal Revenue Bulletin No. 2026-8, which includes Revenue Ruling 2026-5. This revenue ruling provides Section 6621 interest rates for underpayments and overpayments for Q2 2026, as described below:

6% for overpayments generally
5% for overpayments in the case of a corporation, which drops to 3.5% for the portion of a corporate overpayment exceeding $10,000
6% for underpayments generally
8% for large corporate underpayments

The IRS also released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums, and Chief Counsel Advice).

Penalty disclosure guidance

February 9, 2026: The IRS released Internal Revenue Bulletin No. 2026-7, which includes Revenue Procedure 2026-12. This revenue procedure specifies when information shown on a return is considered an adequate disclosure for purposes of reducing an understatement of income tax under Section 6662(d) and avoiding a Section 6694(a)’s preparer penalty.

Under Revenue Procedure 2026-12, taxpayers generally “must furnish all required information in accordance with the applicable forms and instructions, and the money amounts entered on these forms must be verifiable.” An amount is verifiable where, “on audit, the taxpayer can prove the origin of the amount (even if that number is not ultimately accepted by the Service) and the taxpayer can show good faith in entering that number on the applicable form.” And where an item is being reported does not [...]

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New USPS postmark rules may impact tax filings

by Suzanne Golshanara, Edward L. Froelich and Matthew J. Blaney | Feb 13, 2026 | IRS Procedure, Tax Refunds

Effective December 24, 2025, the United States Postal Service (USPS) adopted final rules that revise how postmarks are defined and treated. These changes have important implications for taxpayers who plan to mail their tax returns and rely on postmarks to establish timely filing.

Under the new framework, the USPS has clarified and, in some cases, narrowed what qualifies as an official postmark, where and when postmarks may be applied, how postmark dates correspond to the USPS’s acceptance of a mailpiece, and which mailing methods provide valid evidence of mailing dates. Taxpayers who do not adhere to the updated requirements may face an increased risk that their returns will be treated as late‑filed.

The USPS finalized the newly added Section 608.11, “Postmarks and Postal Possession” (the Final Rule), as part of the Domestic Mail Manual. On August 12, 2025, the USPS published the proposed rule, 90 F.R. 38716, and invited public comment. The USPS noted that this process was not a traditional rulemaking process because the Final Rule does not make any changes to USPS procedures for applying postmarks to mail and instead provides key definitions. The Final Rule’s purpose is to document existing practices and provide clearer guidance on how postmarks work and how they may differ from a mailpiece’s actual date of mailing.

What is the Final Rule?

Under the Final Rule, a “postmark” is defined as a marking applied by the USPS to confirm its acceptance of custody of a mailpiece. The postmark displays the location of the processing facility or retail unit that applied it, which may not be the location where the USPS first obtained possession of the mailpiece. As a result, the postmark date is not necessarily the date the USPS first obtained possession of the mailpiece. The postmark date generally reflects either the date of the first automated processing operation that is performed on the mailpiece or the date that the mailpiece was first accepted at a retail counter. Because most postmarks are applied at processing facilities, the postmark date and location often differ from the date and place of initial acceptance of the mailpiece

On January 2, 2026, the USPS issued a public statement titled Postmarking Myths and Facts, reiterating that it has not changed its postmarking practices. However, the USPS explained that recent adjustments to its transportation network mean some mail may not reach the processing facility on the same day it is collected or dropped off. Consequently, the postmark date applied at a processing center may differ from the actual date the customer mailed the item.

The Final Rule aims to equip customers with enough information to adjust their mailing practices (e.g., by mailing earlier, requesting a manual postmark at a retail location, or purchasing a Certificate of Mailing).

Importance for tax filings

Internal Revenue Code Section 7502(a) provides that the postmark date is treated as the date a tax return or payment is delivered to the Internal Revenue Service (IRS), sometimes known as the [...]

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IRS roundup: December 15 – December 22, 2025

by Matthew J. Blaney and Suzanne Golshanara | Jan 6, 2026 | IRS Guidance, Tax Reform, Tax Refunds

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for December 15, 2025 – December 22, 2025.

December 15, 2025: The IRS issued Notice 2026-2, providing an update on weighted average interest rates, yield curves, and segment rates. The notice specifically focused on the corporate bond monthly yield curve, corresponding spot segment rates used for purposes of Internal Revenue Code (Code) Section 417(e)(3), and 24-month average segment rates for purposes of Code Section 430(h)(2). Notice 2026-2 also provides the interest rate for 30-year Treasury securities for purposes of Code Section 417(e)(3)(A)(ii)(II), as in effect for plan years beginning before 2008, as well as the 30-year Treasury weighted average rate for purposes of Code Section 431(c)(6)(E)(ii)(I).

December 15, 2025: The IRS issued Revenue Ruling 2026-2, providing various prescribed rates for federal income tax purposes for January 2026. The prescribed rates include:

Short-, mid-, and long-term applicable federal rates for certain debt instruments in the Code.
Section 42(b)(1) housing credit appropriate percentages.
The deemed rate of return for calendar year 2026 transfers made to pooled income funds, as described in Section 642(c)(5).
The average of the applicable federal mid-term rates for the 60-month period ending December 31, 2025.

December 19, 2025: The IRS issued Notice 2026-1, providing interim guidance related to the credit for carbon oxide sequestration under Code Section 45Q pending the forthcoming proposed regulations removing reporting obligations related to the geological sequestration of carbon dioxide imposed under subpart RR of 40 CFR part 98. The notice specifically provides a safe harbor for determining eligibility for qualified carbon oxide, captured and disposed of in secure geological storage and not used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project, during calendar year 2025. Notice 2026-1’s safe harbor applies if the US Environmental Protection Agency does not launch the electronic Greenhouse Gas Reporting Tool for filers to prepare and submit information required under subpart RR by June 10, 2026. Taxpayers can rely on the safe harbor to demonstrate compliance with subpart RR requirements when determining the Code Section 45Q credit related to the 2025 Calendar Year Secure Geological Storage.

December 19, 2025: The IRS issued Notice 2026-6, extending the transition period in Revenue Ruling 2025-4 for states administering paid family and medical leave (PFML) programs and employers participating in PFML programs. The extension is for an additional year and only as it relates to the medical leave benefits a state pays to an individual that can be attributed to employer contributions.

December 22, 2025: The IRS issued Notice 2026-3, providing relief from Code Section 6654 and 6655 additions of tax for underpayments of estimated income tax by taxpayers making valid Code Section 1062(a) elections.

December 22, 2025: In Announcement 2026-1, the IRS declared its intent to issue guidance related to Code Section 6435. That guidance, intended for taxpayers that paid Code [...]

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Potential refund opportunity of buyback excise tax based on § 4501 final regulations

by Shawn O’Brien, Brian H. Jenn, Edward L. Froelich, Nick Ryan and Matthew J. Blaney | Dec 15, 2025 | IRS Guidance, Tax Refunds

Taxpayers who paid the stock repurchase excise tax based on prior guidance provided in Notice 2023-2 and the proposed regulations under Internal Revenue Code (IRC) § 4501 may be entitled to a refund based on changes made in the recently issued IRC § 4501 final regulations.

On November 21, 2025, the US Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) issued final regulations under IRC § 4501, which took effect on November 24 and significantly narrowed the applicability of the stock repurchase excise tax compared to prior guidance provided in Notice 2023‑2 and the April 9, 2024, proposed regulations (collectively, the prior guidance). As a result, many transactions that were previously treated by the prior guidance as “repurchases” subject to the 1% stock repurchase excise tax are now no longer taxable. Taxpayers who paid the excise tax based on the prior guidance may be eligible for a refund.

The final regulations eliminated the prior guidance’s broad “funding rule,” which treated a US affiliate that was considered to have “funded” a foreign publicly traded parent (or its foreign affiliates), including via distributions or capital contributions, as having engaged in a covered stock repurchase. The final regulations also significantly narrowed the proposed regulations’ expansive treatment of transactions as “economically similar” to a stock repurchase by specifically excluding leveraged buyouts and other take-private transactions, complete liquidations, and tax-free acquisitive reorganizations under IRC § 368 from being subject to the excise tax. Moreover, the final regulations narrowed what qualifies as “stock” for IRC § 4501 purposes, specifically excluding certain preferred stock described in IRC § 1504(a)(4) (e.g., “plain vanilla” non-voting, non-participating preferred stock) and certain mandatorily redeemable or puttable stock issued before August 16, 2022 (i.e., the date of enactment of IRC § 4501).

The changes in the final regulations have potentially sweeping implications for taxpayers who paid the IRC § 4501 stock repurchase excise tax based on the prior guidance. The narrower scope of the applicability of stock repurchase excise tax under the final regulations creates a substantial opportunity to seek a refund of stock repurchase excise tax previously paid under the now-obsolete prior guidance.

To seek a refund, taxpayers should file Form 720-X, Amended Quarterly Federal Excise Tax Return, for each quarter they filed an original Form 720 reporting and paid the stock repurchase excise tax and attach a Form 7208 (with “Amended” at the top of each form) to each quarterly Form 720-X. Both Form 720-X and amended Form 7208 should be completed, and the excise tax recomputed, based on the final regulations. Because Form 720-X will serve as the taxpayer’s refund claim, it is critical that Form 720-X contains a detailed explanation of the legal basis for the adjustments to the original Forms 720 and 7208 to meet regulatory requirements imposed by the Treasury on refund claims. See Treas. Reg. § 301.6402-2 (setting forth the basic requirements for refund claims).

Taxpayers considering this refund opportunity should be aware that the statute of limitations deadline for filing a refund [...]

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Major update: Potential refund opportunity for interest and penalty amounts accrued during COVID-19 federally declared disaster

by Shawn O’Brien and Samuel F. Hamer | Dec 8, 2025 | Court Procedure Matters, IRS Appeals, IRS Audits, Penalties, Settlements, Significant Court Decision, Tax Refunds

The US Court of Federal Claims’ (CFC) recent decision in Kwong v. United States, No. 23-267 (Fed. Cl. Nov. 25, 2025), provides significant support for the potential refund opportunity we identified in a previous blog post titled, “Refund opportunity for interest and penalty amounts accrued during COVID-19 federally declared disaster.” The refund opportunity applies to taxpayers who made payments to the Internal Revenue Service (IRS) that included underpayment interest and/or failure-to-file/failure-to-pay penalties that accrued during all or part of the period from January 20, 2020, through July 10, 2023.

Although the CFC’s holding in Kwong addressed whether Internal Revenue Code (IRC) § 7508A provided the taxpayer an extension of the two-year statute of limitations deadline for filing a refund suit (in IRC § 6532(a)) that fell after the COVID-19 disaster was declared, Kwong answered important questions for those taxpayers pursuing refunds for underpayment interest and/or failure-to-file/failure-to-pay penalties that accrued during COVID-19. The CFC held that the 2019 version of IRC § 7508A applies to the COVID-19 federally declared disaster. This is a significant holding because Congress amended IRC § 7508A in 2021 to significantly limit the IRC § 7508A(d) mandatory extension period. The CFC also held that the IRC § 7508A(d) mandatory extension period, as applied to the COVID-19 disaster, commenced on January 20, 2020, and ended on July 10, 2023.

Kwong has potentially sweeping implications for taxpayers who faced federal tax filing and/or payment deadlines that fell between January 20, 2020, and July 10, 2023. Under the CFC’s Kwong analysis, the deadline for payment of any federal tax falling between these two dates was extended to July 11, 2023. Since the IRS computes underpayment interest and/or failure-to-file/pay penalties from the payment due date, penalties should not accrue from January 20, 2020, through July 10, 2023, and any taxpayers who already paid these amounts may be entitled to a refund. The CFC’s analysis also does not rule out the possibility that taxpayers with payment due dates preceding January 20, 2020, may be entitled to relief to the extent the underpayment interest and/or failure-to-file/failure-to-pay penalties accrued during the COVID-19 disaster period.

As noted in our previous post, taxpayers considering this refund opportunity should be aware that the statute of limitations to file a refund claim expires three years from the filing deadline of the original tax return or two years from the date on which payment was made, whichever is later (unless the statute of limitations period was otherwise extended). This refund opportunity may apply to underpayment interest and/or penalties paid with respect to federal income, estate, gift, employment, or excise taxes.

Potential Refund Opportunity for Interest and Penalty Amounts Accrued During COVID-19 Federally Declared Disaster

by Shawn O’Brien and Samuel F. Hamer | Jun 12, 2025 | IRS Appeals, IRS Audits, Settlements, Tax Refunds, Trial Courts

Taxpayers who made payments to the Internal Revenue Service (IRS) that included underpayment interest and/or failure-to-file/pay penalties that accrued during all or part of the period between January 20, 2020, through July 10, 2023, should consider filing a refund claim with the IRS to potentially recover accrued interest and penalty amounts.

Internal Revenue Code (IRC) § 7508A (as in effect during the COVID-19 pandemic), legislative history, regulations, and the US Tax Court’s opinion in Abdo v. Commissioner, 168 T.C. 148 (2024), provide the basis for potential refund claims. IRC § 7508A(d) provides for a mandatory postponement period of certain tax-related obligations, including the suspension of the accrual of underpayment interest for the duration of the COVID-19 incident period plus 60 days (January 20, 2020 – July 10, 2023). IRC § 7508A also appears to have paused the increase of failure-to-file/pay penalties, which are based on the time during which the taxpayer is not in compliance.

Taxpayers considering this refund opportunity should be aware that the statute of limitations to file a refund claim expires three years from the filing deadline of the original tax return or two years from the date on which payment was made – whichever is later (unless the statute of limitations period was otherwise extended). This refund opportunity may apply to underpayment interest and/or penalties paid with respect to federal income, estate, gift, employment, or excise taxes.

Upcoming Webinar: Navigating IRS Tax Refunds

by Shawn O’Brien, Susan E. Ryba and Samuel F. Hamer | Mar 31, 2025 | Tax Refunds

On April 9, 2025, join McDermott’s Tax Controversy & Litigation Group for an insightful webinar on the intricacies of claiming and collecting Internal Revenue Service (IRS) tax refunds. This session is designed for tax professionals, legal practitioners, and anyone interested in understanding the complexities of the IRS refund claims process and what to watch out for.

What You Will Learn:

Step-by-step guidance on filing IRS refund claims
Key legal considerations, insights, and traps surrounding refund claims
Strategies for effectively collecting refunds from the IRS
When and how to litigate refund claims

Click here for details and to register.

FedEx Defeats Government’s Loper Bright Gambit

by Samuel F. Hamer, Edward L. Froelich, Michael J. Scarduzio and Evan Walters | Mar 13, 2025 | Court Procedure Matters, IRS Guidance, Tax Refunds

On February 13, 2025, a Tennessee federal district court handed FedEx Corporation its second win in a refund action involving the application of foreign tax credits to what are known as “offset earnings.”[1] Offset earnings are earnings from a taxpayer’s profitable related foreign corporations that are offset by losses from other related foreign corporations. FedEx previously prevailed on the question of whether it was entitled to foreign tax credits related to such earnings.[2] In this most recent ruling, the court rejected the Government’s reliance on a certain regulatory provision called the “Regulatory Haircut Rule”[3] to argue that the amount of FedEx’s claimed refund should be reduced. The case now appears to be set for appeal.

Revisiting the analysis in its first ruling, the court explained the error of the Government’s reliance upon the Regulatory Haircut Rule. In short, the court said that the rule’s application conflicted with the best construction of the governing statutes, primarily Internal Revenue Code (IRC) Sections 960, 965(b)(4), and 965(g). The Government defended its reliance by appealing to Loper Bright’s instruction that courts must respect legitimate delegations of authority to an agency.[4] Citing IRC Section 965(o), which authorized the Secretary of the Treasury to prescribe regulations “as may be necessary or appropriate to carry out the provisions of” Section 965 and to “prevent the avoidance of the purposes” of this section, the Government argued that the Regulatory Haircut Rule furthered the IRC’s broader goal of preventing tax avoidance and that Loper Bright required the court to respect the Secretary’s exercise of his delegated authority.

While acknowledging that legitimate delegations of authority to agencies remain permissible after Loper Bright, the court reminded the Government that an agency does not have the power to regulate in a manner that is inconsistent with the statute, even when a delegation provision grants the agency broad discretionary authority:

Assuming that Congress delegated authority . . . to promulgate regulations implementing section 965 . . . that authority cannot, under Loper Bright, encompass the discretion to promulgate regulations that contravene the “single, best meaning” of section 965, as determined by the courts.[5]

In other words, a statute’s delegation provision should not be interpreted to allow Treasury to eliminate rules that Congress established in other parts of the IRC.

Practice Point: Referencing Loper Bright’s acknowledgment that Congress may “confer discretionary authority on agencies,”[6] the Government has defended (and likely will continue to defend) its regulations on the theory that its exercises of such authority should be respected. But as Loper Bright reminds us, courts have an independent duty to decide the meaning of statutory delegations. Thus, taxpayers should closely examine whether regulations purportedly derived from a statute’s delegation provision comport with the rest of the statute. Those that do not should be challenged.

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[1] FedEx Corp. & Subs. v. United States, No. 2:20-cv-02794 (W.D. Tenn., Feb. 13, 2025)(electronically available here).

[2] FedEx Corp. [...]

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RECENT POSTS

Is your ERC claim protected? Keep an eye on litigation deadlines

IRS roundup: March 3 – March 10, 2026

IRS roundup: February 17 – February 27, 2026

Refund claims gain national attention: COVID-19 disaster period may eliminate underpayment interest and penalties

IRS roundup: February 9 – February 17, 2026