Taxpayer Advocate Urges IRS to Pause Denials Amid Ongoing ‘Kwong’ Refund Litigation

The Internal Revenue Service (IRS) is facing mounting pressure from the National Taxpayer Advocate (NTA) to cease the issuance of denial and “no consideration” letters regarding claims tied to the Kwong litigation. As the agency continues to process a massive backlog of refund requests stemming from COVID-19 disaster relief provisions, Erin Collins, the National Taxpayer Advocate, has warned that the IRS’s current approach may be premature, legally questionable, and harmful to the rights of hundreds of thousands of taxpayers.

The controversy centers on the interpretation of statutory deadlines for refund claims, a legal battle that has left both taxpayers and tax professionals in a state of uncertainty. With over 275,000 claims currently under review, the NTA is advocating for a suspension of these adverse determinations until the judiciary provides a definitive resolution to the underlying legal disputes.

The Genesis of the Conflict: Understanding the Kwong Case

The root of the current dispute lies in a pivotal ruling by the U.S. Court of Federal Claims in Kwong v. United States (179 Fed. Cl. 382, 2025). The case focused on the intersection of COVID-19 disaster relief laws and the standard statutory timelines governing tax refund litigation.

The Legal Framework

Under Section 6532(a)(1) of the Internal Revenue Code, taxpayers typically have a two-year window to file a refund lawsuit following the formal disallowance of a claim. However, the COVID-19 pandemic prompted the enactment of Section 7508A(d), which provided for the automatic postponement of various tax-related deadlines during the declared disaster period.

The Court’s Ruling

In the Kwong decision, the court determined that the two-year deadline for filing a refund suit was, in fact, subject to the automatic postponement afforded by Section 7508A(d). The court established that this postponement period commenced on January 20, 2020, and concluded on July 10, 2023. Consequently, Terry Kwong’s lawsuit, filed on February 23, 2023, was deemed timely, despite falling outside the traditional statutory window that the IRS had previously enforced.

This precedent opened the door for a massive influx of taxpayers—who had previously assumed their claims were time-barred—to seek refunds for tax years impacted by the pandemic.

Chronology of the Dispute

The escalation of this issue has occurred over several months, marked by a surge in filings and a reactive, perhaps overly aggressive, administrative response from the IRS.

• Early 2025: The Kwong ruling is finalized, signaling a potential shift in how the IRS must handle refund claims that were previously deemed expired.
• Spring 2025: Encouraged by the ruling, the NTA urges taxpayers who believe they are affected to file protective claims. The deadline of July 10, 2026, is identified as a critical threshold for many taxpayers to preserve their legal rights.
• Summer 2025: The IRS begins receiving an avalanche of Form 843, Claim for Refund and Request for Abatement. The volume reaches over 275,000 claims.
• Late 2025 to Present: In response to the high volume, the IRS begins issuing mass-distributed denial and “no consideration” letters. These letters effectively reject the claims, often citing criteria that do not account for the Kwong precedent.
• Tuesday (Recent): National Taxpayer Advocate Erin Collins publishes a scathing blog post, formally requesting that the IRS halt these actions and review its internal screening criteria.

Supporting Data: The Scale of the Impact

The numbers involved in the Kwong fallout are staggering, illustrating why the NTA is treating this as a systemic issue rather than an isolated administrative error.

Filing Volume

According to NTA Erin Collins, the IRS has already processed or received more than 275,000 Forms 843 specifically referencing Kwong-related arguments. While this figure is significant, it is viewed as a mere "drop in the bucket" compared to the total number of taxpayers—estimated in the tens of millions—who were subject to tax deadlines during the COVID-19 disaster period.

Potential Financial Exposure

While the exact dollar amount of the claims is not yet public, the collective value of these refund requests is likely in the billions. The IRS’s attempt to mitigate this exposure by issuing rapid denials is a clear attempt to manage the fiscal impact, but the NTA argues that such fiscal management cannot come at the expense of established taxpayer rights.

Official Responses and the NTA’s Position

Erin Collins has been unequivocal in her criticism of the IRS’s current trajectory. Her position is rooted in the belief that the IRS is acting with a "heads-I-win, tails-you-lose" mentality that disregards the complexities of the Kwong litigation.

The Call for a "Hold"

Collins argues that the most appropriate course of action for the IRS is to place all Kwong-related claims into a "suspense" status. She points to the Internal Revenue Manual (IRM), which generally directs the agency to delay action on protective claims when related litigation is pending in the courts. By continuing to issue denials, the IRS is violating its own internal policy and exacerbating the burden on the court system.

Concerns Regarding Misinterpretation

A primary fear held by the NTA is that taxpayers—many of whom are not tax professionals—will misread the IRS letters. A "no consideration" letter is often interpreted by a layperson as a final, non-negotiable rejection. This may cause taxpayers to:

1. Abandon valid claims: Believing the IRS has definitively ruled against them, taxpayers may walk away from money they are legally entitled to receive.
2. Prematurely litigate: Fearing they have run out of options, taxpayers may rush to file lawsuits, unnecessarily clogging the federal court system.

The "Tick-Tock" of the Statute of Limitations

Collins reminded the public that a formal notice of claim disallowance serves as a legal trigger. Under the law, the issuance of a disallowance letter officially starts the two-year clock for filing a refund lawsuit. Continued correspondence or "discussions" with the IRS after receiving this letter generally does not stop that clock. Therefore, the IRS’s premature denials are placing taxpayers in a precarious legal position where they are forced to sue just to keep their options open.

Implications for Taxpayers and the IRS

The implications of this standoff are far-reaching, affecting both the immediate financial health of taxpayers and the long-term credibility of the IRS.

For the Taxpayer: The Risk of Inaction

Taxpayers who have received these letters are in a difficult position. The NTA’s advice is clear: do not ignore the letter, but do not assume it is the final word. Taxpayers should consult with tax professionals to evaluate whether their claim falls under the Kwong interpretation and whether they need to file a formal protest or prepare for potential litigation. However, the burden of this administrative confusion rests unfairly on the individual taxpayer, who must now navigate a complex legal landscape created by the IRS’s refusal to pause.

For the IRS: The Risk of Systemic Litigation

If the IRS continues to issue mass denials, it risks a tidal wave of litigation. If the courts continue to side with the Kwong precedent, the IRS may eventually be forced to process hundreds of thousands of claims it previously rejected. This would not only lead to significant administrative costs but also interest payments on the delayed refunds, further ballooning the total cost to the federal government.

The Need for Procedural Reform

The NTA has requested that the IRS:

1. Identify and Review: The agency must identify all taxpayers who received these letters and proactively review those determinations for accuracy.
2. Corrective Action: Where errors are found, the IRS must take immediate steps to rescind the letters and put the claims back into the queue.
3. Update Guidance: The IRS must update its internal screening criteria to ensure that the Kwong decision is correctly applied to all pending and future claims.

Conclusion

The Kwong litigation represents a rare and significant instance where the judicial branch has expanded the window for taxpayer relief in the wake of the COVID-19 pandemic. By aggressively pushing back against these claims, the IRS is not merely performing its duty to protect the treasury; it is arguably overstepping its authority and ignoring the spirit of the relief granted by the court.

As Erin Collins noted, "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." Until the legal dust settles, the IRS would do well to heed the NTA’s advice, adopt a more cautious stance, and prioritize the protection of taxpayer rights over the convenience of administrative expediency.

For the average taxpayer, the message is one of vigilance. The Kwong litigation is ongoing, and the battle for these refunds is far from over. Staying informed, documenting all communications, and refusing to be intimidated by automated letters are the essential steps in navigating this challenging tax environment.