Court fights over 'and continuing' hinge on billions in tax bills

Two federal judges have ruled for taxpayers on the deadline question

WASHINGTON — Tens of billions of dollars hinge on an odd-sounding question: What does “and continuing” mean?

That phrase in President Trump’s March 2020 Covid-19 pandemic disaster declaration is the key to court cases that will determine whether the government turned off tax deadlines for more than three years, and whether U.S. companies and individuals prevail in disputes over billions of dollars.

To many tax lawyers — and two federal judges, so far — Trump’s “and continuing” description of the unfolding national crisis signaled an ongoing disaster. That reading triggered an indefinite suspension of tax deadlines that ended only after the government declared the pandemic over in 2023. If deadlines disappeared for that long, many taxpayers with pending Internal Revenue Service disputes could see their bills shrink or vanish, while others who filed refund claims that would otherwise have been years late would get paid.

Potential winners sit at both ends of the tax spectrum: millions of low-income taxpayers with outstanding pandemic-era debts, and large companies such as BMW, Texas Instruments and Western Digital that have invoked the deadline suspension in court cases. “It’s joined the low-income taxpayer groups and the groups representing the corporations in a way that I’ve never seen before,” said Frank Agostino of the Kostelanetz law firm. “That’s why I know it’s gotta be big.”

The government says Trump’s formal words didn’t change deadlines beyond March 2020. Because “and continuing” wasn’t a date, government lawyers contend, the law’s 60-day mandatory extensions must start on the only date specified in the declaration: Jan. 20, 2020. The U.S. offers backup arguments that deadlines were extended to May 21, 2020, or Jan. 20, 2021, but not into 2023.

Peter Lowy of the law firm Nelson Mullins in Houston, who filed a brief in one case, said the technical weakness of the government’s argument “is they’re turning a two-day formula into a one-day formula.” Keeping the end date open, he said, is “exactly what you would say when a disaster is bad enough when nobody can see to the other side of it. And that is when you need the relief the most.”

The idea that tax deadlines vanished for more than three years is absurd and produces costly results, Justice Department lawyers wrote in an appeals court brief that challenges a lower court’s ruling. “Taxpayers have filed an avalanche of administrative refund claims and lawsuits seeking windfalls,” the government argued, adding that a loss could cost the Treasury tens of billions of dollars and affect tens of millions of taxpayers. The IRS hasn’t released an official tally of potential costs, and the agency generally doesn’t comment on pending litigation.

The tax code runs on deadlines, including the mid-April individual income-tax payment date and lesser-known deadlines for claiming a refund, starting an audit and suing the government in U.S. Tax Court. To help taxpayers cope with disasters, Congress created rules that relax deadlines in unusual circumstances, and lawmakers made one crucial change in late 2019, removing some IRS discretion. Congress enacted a mandatory deadline extension, starting with the “earliest incident date” specified in a presidential disaster declaration and ending 60 days after the “latest incident date so specified.”

That formula works well for a hurricane or wildfire — what Congress had in mind — but not necessarily for an open-ended pandemic. Trump’s declaration came in March 2020, listing the disaster date as “Jan. 20, 2020, and continuing.” The IRS announced some extended deadlines during the pandemic under separate legal authority, but it consistently rejected the idea that tax deadlines had disappeared and insisted that people generally follow the usual schedule. Congress has since changed the law for future disasters.

Largely, taxpayers complied with IRS instructions. But missed-deadline cases started percolating through courts, and when taxpayers argued that deadlines didn’t actually exist from January 2020 through July 10, 2023, they began winning.

The first major case, brought by California real-estate investor Terry Kwong, is headed to the U.S. Court of Appeals for the Federal Circuit. Kwong, whose dispute revolved around whether he filed suit on time, prevailed in the U.S. Court of Federal Claims last year. That is the case the government is fighting, leaning heavily on the “and continuing” language. “‘And continuing’ is neither a date, nor is it specific,” the Justice Department brief said. “It is general, forward-looking language that is relevant for the administration of disaster assistance but not the tax code.”

Last week, in a different case, federal Judge Ann Donnelly in New York ruled against the government, saying she found none of its arguments persuasive. Donnelly sided with Juliet Singh, the victim of a 2017 online-dating scam. The IRS sat on Singh’s informal refund claim, then demanded a formal one, then deemed her 2022 claim too late, said Elizabeth Maresca, a clinical professor of law at Fordham University whose pro bono clinic represented Singh. Donnelly’s ruling in favor of extended deadlines meant that Singh’s refund claim was timely. “The statute says what it says, and this is the result that is demanded by the plain language,” Maresca said.

Donnelly noted that the government’s 2023 announcement ending the pandemic actually amended the prior presidential declarations to include an end date. That rendered the “and continuing” language irrelevant, she wrote.

The Tax Court is weighing the issue in a case brought by Michael and Tatyana Wepplo of California. They lost their attempt to challenge a tax bill, but now they are questioning how the interest they owe should be calculated, because some of it accrued during the pandemic. The key question is whether the pandemic pause applies to taxpayers who owed interest when the disaster started or whether relaxed rules apply only to interest on tax debts that arose during the pandemic.

That question is particularly important to large companies, because many of them are still litigating cases that began in prepandemic tax years. Pausing interest on a $500 million tax bill for three-plus years could mean real savings.

The main extended deadline for filing those refund claims lapsed earlier this year, limiting opportunities for people to get money back. Those who never paid, or companies with long-running tax disputes, could still win as case law develops.

The government will likely keep losing pandemic-deadline cases, said Jessica Marine of Frost Law. “I think they’re grasping for straws,” she said. “I know that it has an outcome that the government doesn’t love, but I think it’s the right outcome.”

The Kwong ruling now on appeal is the same decision that sent taxpayers scrambling to a July 10 deadline for preserving pandemic-era penalty refunds and abatements, a deadline the national taxpayer advocate had urged taxpayers to use. As MSI reported in May, most taxpayers had to file a claim by July 10 to preserve eligibility; that deadline has now passed while the underlying appeal proceeds.