National Taxpayer Advocate Urges IRS to Halt Kwong-Related Claim Denials Amid Ongoing COVID-19 Relief Litigation

WASHINGTON — In a mounting conflict between tax administrators and taxpayer advocacy watchdogs, the Internal Revenue Service (IRS) is facing sharp criticism for issuing a wave of claim denials and "no consideration" letters to taxpayers tied to the pivotal Kwong disaster relief litigation. National Taxpayer Advocate Erin Collins has formally called upon the agency to immediately put the brakes on these automated and preemptive rejections, warning that the IRS is utilizing screening criteria that fail to capture the nuances of active federal court proceedings.

The controversy centers on hundreds of thousands of refund and abatement claims filed in the wake of the COVID-19 pandemic. As affected individuals and businesses grapple with confusing correspondence from the tax authority, the unfolding situation highlights the friction between strict administrative efficiency and the protection of fundamental taxpayer rights during unprecedented national emergencies.

Main Facts

At the core of the dispute is the ongoing fallout from Kwong, a landmark legal battle centered on how statutory deadlines for tax refunds were affected by the COVID-19 national emergency declarations.

To date, the IRS has logged more than 275,000 Forms 843 (Claim for Refund and Request for Abatement) asserting Kwong-related claims. These filings stem from taxpayers seeking relief or refunds based on statutory interpretations validated by the U.S. Court of Federal Claims in the Kwong decision.

However, rather than holding these claims while the litigation works its way through the judicial system—a standard administrative practice for protective claims—the IRS has begun issuing formal disallowances and "no consideration" determinations. National Taxpayer Advocate Erin Collins revealed the agency’s actions in a strongly worded blog post, pointing out that the current volume of 275,000 claims represents only a tiny fraction of the tens of millions of American taxpayers who could theoretically be impacted by the court’s ultimate interpretation of the law.

Collins has issued an urgent directive to taxpayers who have received these rejection notices: take the letters seriously, but do not hastily abandon potentially valid claims. Furthermore, Collins has formally petitioned IRS leadership to identify every taxpayer who received these premature notices, thoroughly review the underlying determinations, and enact corrective measures where administrative overreach has occurred.

Chronology of the Kwong Litigation and Administrative Action

Understanding the gravity of the National Taxpayer Advocate’s intervention requires examining the timeline of legal developments and administrative responses that brought the tax community to this juncture.

The Pandemic Declaration and Emergency Powers

When the COVID-19 pandemic struck the United States in early 2020, federal authorities issued broad disaster declarations. These declarations triggered various emergency statutory provisions designed to give citizens and businesses breathing room as economic shutdowns disrupted daily life and administrative operations. Among these provisions was Section 7508A of the Internal Revenue Code, which grants the government authority to postpone certain tax-related deadlines during a declared disaster.

The Kwong Court Decision (Kwong v. United States)

The legal showdown crystallized in Kwong, 179 Fed. Cl. 382 (2025). In this case, the U.S. Court of Federal Claims addressed a critical question: Did the COVID-19 disaster period automatically postpone the strict two-year statutory deadline—found in Section 6532(a)(1)—for filing a tax refund lawsuit in federal court?

The Court of Federal Claims ruled definitively in the affirmative. The court held that the two-year deadline was indeed automatically postponed under Section 7508A(d) throughout the duration of the COVID-19 disaster period. Specifically, the court determined that:

• The postponement period began: January 20, 2020.
• The postponement period ended: July 10, 2023.

Applying this logic to the case at hand, the court found that the plaintiff, Terry Kwong, had filed his refund lawsuit on February 23, 2023, well within the legally permissible, postponed timeframe. Consequently, the court deemed the lawsuit timely, opening the floodgates for similar legal arguments by other taxpayers who missed traditional filing windows due to pandemic-related disruptions.

The Rush to File Protective Claims

Recognizing the implications of the Kwong ruling, the National Taxpayer Advocate previously issued advisories urging potentially affected taxpayers to file protective refund claims or formal refund requests. Collins and other tax professionals noted that to fully preserve their legal rights under the court’s interpretation, many taxpayers needed to act well in advance of July 10, 2026. This triggered a massive influx of paperwork at IRS processing centers, culminating in the submission of over 275,000 Forms 843.

The IRS Counter-Response and NTA Intervention

Rather than cataloging these filings as protective claims awaiting judicial finality, IRS processing systems began screening and rejecting a significant portion of them. Taxpayers across the country began opening mail containing official IRS disallowance and "no consideration" notices.

Alarmed by this development, National Taxpayer Advocate Erin Collins published her public advisory on Tuesday, demanding an immediate halt to the denials while the courts continue to deliberate the controlling legal questions.

Supporting Data and Metrics

The scope of the Kwong controversy is defined by stark figures that illustrate both the immense administrative burden on the IRS and the vast population of potentially affected Americans:

• 275,000+: The number of Forms 843 (Claim for Refund and Request for Abatement) received by the IRS asserting Kwong-related relief claims.
• Tens of Millions: The estimated number of taxpayers across the United States who could theoretically be impacted by the legal precedents being established in the Kwong litigation.
• January 20, 2020 – July 10, 2023: The specific multi-year window during which the Court of Federal Claims ruled that statutory deadlines were automatically postponed under Section 7508A(d).
• February 23, 2023: The filing date of Terry Kwong’s foundational lawsuit, which the court ultimately validated as timely due to disaster-relief postponements.
• July 10, 2026: The critical target date identified by tax advocates by which many individuals needed to act to preserve their claims under the court’s expanded timeline interpretation.
• 2 Years: The standard statutory countdown clock initiated by a formal IRS notice of claim disallowance, giving taxpayers a strict window to file a refund lawsuit in federal court.

Official Responses and Perspectives

The National Taxpayer Advocate’s Stance

Erin Collins has emerged as the primary defender of taxpayers caught in the crosshairs of this administrative dispute. In her official statements, Collins expressed deep apprehension regarding the mechanics of the IRS’s current screening procedures.

"I am particularly concerned that the IRS is sending letters to some taxpayers declining to process or disallowing their Kwong-related claims based on criteria that may not adequately account for the legal issues still being litigated," Collins wrote.

Collins emphasized that the agency’s current approach defies established internal administrative logic. She pointed directly to the Internal Revenue Manual (IRM), which outlines standard operational procedures for tax administration. The IRM generally supports suspending or delaying action on protective claims while related, controlling litigation makes its way through the courts.

According to Collins, holding these claims serves a triple purpose: it protects vulnerable taxpayer rights, drastically reduces public confusion, and prevents unnecessary, costly litigation that clogs both the IRS administrative machinery and the federal court system.

"Taxpayers who took timely steps to preserve their rights should not be placed at risk of losing those rights because the IRS prematurely denied or declined to process their claims while the controlling legal questions remain unresolved," Collins added.

The IRS Perspective and Administrative Reality

While the IRS has not formally altered its automated processing pipelines in response to the NTA’s latest blog post, the agency faces an unprecedented backlog of pandemic-era adjustments. Tax administrators often utilize automated screening criteria to manage high volumes of incoming correspondence, attempting to filter out filings that do not fit standard, routine statutory parameters.

However, critics argue that applying rigid, routine filters to complex disaster-relief litigation inevitably results in false negatives—erroneous rejections of legitimate claims filed by taxpayers attempting to navigate a shifting legal landscape.

Implications for Taxpayers and Practitioners

The unfolding Kwong dispute carries severe, practical implications for everyday taxpayers, businesses, and the certified public accountants and tax attorneys who represent them.

Navigating the "No Consideration" Letters

For individuals who have already received a denial or "no consideration" letter from the IRS, Collins advises a balanced approach: treat the correspondence with utmost seriousness, but do not panic or prematurely surrender.

"If you received one of these letters, do not ignore it, but don’t assume it necessarily ends the matter either," Collins advised.

The Dangerous "Litigation Clock"

One of the most perilous traps facing taxpayers who receive formal claim disallowances is the activation of the statute of limitations for judicial review. Under federal tax law, the issuance of a formal notice of claim disallowance starts a strict two-year clock for filing a refund lawsuit in a U.S. District Court or the Court of Federal Claims.

Crucially, tax practitioners warn that continued informal discussions, correspondence, or appeals with the IRS do not stop or toll this two-year clock once a formal disallowance has been issued. Taxpayers who simply wait for the IRS to change its mind after receiving a disallowance notice risk permanently losing their right to seek judicial redress.

Conversely, taxpayers who mistakenly interpret a "no consideration" letter as a final disallowance might panic and file premature lawsuits, or conversely, abandon valid claims out of frustration. This confusion underscores the urgent need for clear, updated guidance and claim-screening criteria from the IRS before additional letters are dispatched to the public.

The Path Forward

As the legal battles surrounding Kwong continue to unfold in the federal courts, the pressure is mounting on IRS leadership to heed the National Taxpayer Advocate’s recommendations. Tax professionals across the nation will be watching closely to see whether the agency agrees to freeze its disallowance letters, review the 275,000 pending Forms 843, and establish a coherent, uniform policy that respects both administrative efficiency and the rights of taxpayers impacted by the COVID-19 pandemic.