Western Digital Sues IRS in Federal Claims Court Demanding $21 Million Refund on COVID-Era Interest
America ı By Rachel Moore
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Hard drive giant Western Digital Corp. has filed suit against the United States in the U.S. Court of Federal Claims, seeking a $21 million refund plus additional interest after alleging the Internal Revenue Service improperly imposed underpayment interest during a multi-year period when such charges should have been suspended due to the federally declared COVID-19 disaster.
In the complaint filed February 6, 2026, the California-based company explains it ultimately paid a $107 million IRS bill stemming from a 2008 tax underpayment, including $53 million in accrued interest, following an adverse U.S. Tax Court ruling in a long-running transfer pricing dispute.
Western Digital argues a significant portion of that interest improperly accumulated between January 20, 2020, and May 11, 2023 — the full incident period of the nationwide COVID-19 emergency declared by then-President Donald Trump under the Stafford Act, plus extensions. That period overlapped entirely with the September 2008–July 2023 interest accrual window on the 2008 judgment.
Under Internal Revenue Code Section 7508A(d), which governs tax deadline postponements and related relief in federally declared disasters, interest on underpayments must be suspended for taxpayers whose principal place of business is in a disaster area. Western Digital asserts its California headquarters qualifies, entitling it to disregard the entire COVID incident period (plus 60 days afterward) when calculating interest liability.
The company calculates the overcharged interest at approximately $21 million and is seeking that amount refunded, together with interest on the refunded sum as allowed by law.
Western Digital first submitted an administrative refund claim to the IRS in July 2025; the agency has not yet disallowed it, prompting the court filing to preserve the claim.
This suit arrives amid growing taxpayer challenges to IRS handling of interest and penalties during the COVID era. Recent rulings — including Kwong v. United States (Fed. Cl. 2025) — have confirmed that Section 7508A(d) triggered mandatory suspensions during the COVID declarations, rejecting narrower IRS interpretations and opening doors for similar refund demands.
An attorney for Western Digital declined to comment. An IRS spokesperson also declined to comment on the pending litigation.
Western Digital is represented by Saul Mezei and John F. Craig III of Gibson Dunn & Crutcher LLP.
If successful, the case could reinforce precedent that the IRS must honor full statutory interest suspensions tied to disaster declarations — potentially affecting other large corporations and taxpayers who paid underpayment interest during 2020–2023.
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