National Taxpayer Advocate Urges IRS to Halt Kwong-Related Claim Denials Amid Ongoing COVID-19 Relief Litigation
WASHINGTON — In a rapidly escalating dispute over COVID-19 tax relief deadlines, National Taxpayer Advocate Erin Collins has formally called on the Internal Revenue Service (IRS) to immediately halt the issuance of denial and "no consideration" letters tied to the ongoing Kwong litigation. The controversy centers on hundreds of thousands of refund claims filed by taxpayers seeking to take advantage of disaster-relief extensions triggered during the pandemic.
Collins’ recent intervention highlights a growing friction between tax administration policy and judicial interpretations of emergency statutory deadlines. As tens of thousands of Americans receive discouraging correspondence from the tax agency, the National Taxpayer Advocate is urging restraint, arguing that the IRS is acting prematurely while vital legal questions remain unresolved in the federal courts.
Main Facts: The Kwong Dispute and IRS Rejections
At the heart of the controversy is Kwong (179 Fed. Cl. 382 (2025)), a landmark Court of Federal Claims decision that reinterpreted how statutory deadlines apply to tax refund lawsuits during federally declared disasters.
The Core Legal Issue
Under Internal Revenue Code Section 6532(a)(1), taxpayers generally face a strict two-year deadline to file a refund lawsuit after the IRS disallows a claim. However, the Kwong litigation addresses how this timeline interacted with emergency declarations during the COVID-19 pandemic.
In Kwong, the Court of Federal Claims held that the two-year deadline for filing a refund lawsuit was automatically postponed under Section 7508A(d) throughout the COVID-19 disaster period. Specifically, the court ruled that:
- The postponement period began on January 20, 2020.
- The postponement period concluded on July 10, 2023.
- Because of this statutory pause, plaintiff Terry Kwong’s refund lawsuit—filed on February 23, 2023—was deemed timely, despite standard calendar calculations that might have otherwise barred the action.
The IRS Response and Rejection Letters
Despite the unfolding legal precedent, the IRS has begun processing over 275,000 Forms 843 (Claim for Refund and Request for Abatement) that assert Kwong-related claims. Rather than suspending action until the courts settle the matter definitively, the agency has started issuing formal denial and "no consideration" letters.
Collins expressed deep alarm over these determinations in a public blog post, stating that the criteria being utilized by the IRS "may not adequately account for the legal issues still being litigated." She has explicitly requested that the IRS identify every taxpayer who has received these rejection letters, thoroughly review the underlying determinations, and take corrective action wherever appropriate.
Chronology of Events: From Pandemic Declarations to Judicial Rulings
To understand the current crisis, it is necessary to trace the timeline of statutory changes, pandemic disruptions, and subsequent litigation.
- January 20, 2020: The official COVID-19 disaster period begins, triggering emergency relief provisions under federal disaster declarations.
- February 23, 2023: Taxpayer Terry Kwong files a tax refund lawsuit. The timing becomes the centerpiece of subsequent jurisdictional debates over whether pandemic-era extensions applied to Section 6532(a)(1) deadlines.
- July 10, 2023: The COVID-19 disaster postponement period officially concludes, setting off a new chain of deadlines for taxpayers seeking to preserve unfulfilled refund claims.
- 2025 (Kwong, 179 Fed. Cl. 382): The Court of Federal Claims issues its decision, ruling in favor of the taxpayer and establishing that the two-year filing deadline was legally paused through July 10, 2023.
- Mid-2026 (Projected Deadline): Tax experts and the Taxpayer Advocate Service note that many potentially affected taxpayers face a critical protective deadline of July 10, 2026, to file refund or protective claims under the court’s interpretation.
- Present Day: The IRS receives more than 275,000 Forms 843 tied to Kwong. As rejections go out, National Taxpayer Advocate Erin Collins publishes formal guidance urging the IRS to suspend denials and requesting administrative remediation.
Supporting Data and Scope of Impact
While 275,000 claims represent a massive administrative undertaking for the IRS, the figures represent only a fraction of the broader taxpaying public.
- 275,000+: The total number of Forms 843 (Claim for Refund and Request for Abatement) filed by taxpayers asserting Kwong-related claims.
- A Small Fraction: According to Collins, the 275,000 filed claims represent only a minuscule portion of the tens of millions of taxpayers who could theoretically be affected by the COVID-19 disaster relief rules and the ongoing Kwong litigation.
- Two-Year Clock: A formal notice of claim disallowance issued by the IRS starts a strict, unyielding two-year clock for a taxpayer to file a refund lawsuit in federal court—a timeframe that standard IRS communications do not automatically pause.
This data underscores the systemic risk. If the IRS continues to issue denials unchecked, hundreds of thousands of filers could find themselves forced into hurried legal action or risk forfeiting substantial financial claims due to administrative pressure.
Official Responses and Strategic Recommendations
The Taxpayer Advocate Service (TAS) has taken a proactive stance, offering both direct critiques of current IRS procedures and strategic guidance for affected taxpayers.
The Advocate’s Proposal: Suspend and Hold
Collins argued that the most prudent and equitable course of action for the IRS is to hold Kwong-related claims in suspense until the judicial system fully resolves the underlying legal questions.
She pointed directly to the Internal Revenue Manual (IRM), which generally provides internal guidance supporting the delay of action on protective claims while related litigation is actively pending. According to Collins, holding these claims would:
- Protect vulnerable taxpayer rights.
- Drastically reduce public confusion.
- Avoid unnecessary, costly, and premature litigation in federal courts.
Furthermore, Collins urged the IRS to review and update its internal claim-screening criteria before issuing any additional Kwong-related denial or no-consideration letters.
Advice for Taxpayers Who Received Letters
For individuals who have already opened an envelope from the IRS containing a denial or no-consideration letter, Collins offered a nuanced warning: Take the correspondence seriously, but do not panic.
"If you received one of these letters, do not ignore it, but don’t assume it necessarily ends the matter either," Collins advised.
She explicitly cautioned against two major pitfalls:
- Abandoning Valid Claims: Taxpayers should not assume that an early IRS rejection means their legal interpretation is fundamentally incorrect, especially while appellate and trial courts continue to weigh the parameters of the Kwong decision.
- Misinterpreting the Statute of Limitations: Taxpayers must remember that a formal notice of claim disallowance initiates a strict two-year window to file a refund lawsuit. Critically, continued informal discussions or correspondence with the IRS do not toll or stop this legal clock.
"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 emphasized.
Broader Implications for Tax Administration and Compliance
The Kwong dispute highlights a persistent structural challenge within modern tax administration: the friction between emergency executive and legislative relief measures enacted during systemic crises, and the rigid enforcement mechanisms of federal tax agencies.
When the federal government deployed unprecedented disaster relief during the COVID-19 pandemic, it sought to shield citizens and businesses from extraordinary economic shocks. However, the mechanics of applying standard tax statutes—such as refund claims and limitation periods—to emergency extensions have created a legal gray area.
If the IRS continues its current trajectory of rejecting Kwong-related claims, several cascading consequences are likely to follow:
- A Surge in Protective Litigation: Taxpayers determined not to lose their rights may flood the Court of Federal Claims and U.S. District Courts with protective lawsuits before the two-year limitations period expires, straining judicial dockets.
- Erosion of Public Trust: Mass rejections of disaster-relief claims risk eroding trust in the tax administration system, particularly among filers who believed they were acting in good faith under emergency statutory extensions.
- Administrative Inefficiency: Forcing taxpayers to litigate claims individually while the legal framework is still being shaped creates unnecessary administrative burdens for both the Department of Justice and the IRS itself.
As the legal battles surrounding Kwong proceed, all eyes will be on whether leadership at the IRS heeds the National Taxpayer Advocate’s call to pause its rejection letters. In the interim, tax professionals and affected filers are advised to monitor developments closely, consult qualified counsel, and meticulously track statutory deadlines to safeguard their financial interests.
To comment on this article or to suggest an idea for future coverage, contact Martha Waggoner at [email protected].
