The U.S. tax landscape is currently caught in a complex intersection of administrative procedure and judicial interpretation. As the Internal Revenue Service (IRS) processes an influx of refund claims linked to the Kwong litigation, National Taxpayer Advocate (NTA) Erin Collins has issued a stark warning to the agency: cease the premature denial of these claims. The ongoing dispute, which centers on the interpretation of disaster relief deadlines during the COVID-19 pandemic, has left hundreds of thousands of taxpayers in a state of administrative limbo.
The Core Conflict: What is the Kwong Litigation?
At the heart of this issue is the case Kwong v. United States (179 Fed. Cl. 382, 2025). The central legal question concerns the interplay between Section 6532(a)(1) and Section 7508A(d) of the Internal Revenue Code. Section 6532(a)(1) typically imposes a strict two-year deadline for taxpayers to file a lawsuit following the denial of an administrative refund claim. However, Section 7508A(d) provides for the postponement of certain time-sensitive acts during a federally declared disaster.
In the Kwong decision, the Court of Federal Claims ruled that the COVID-19 disaster period effectively acted as a "pause button" for the statute of limitations. The court determined that the postponement period began on January 20, 2020, and concluded on July 10, 2023. Consequently, the court held that Terry Kwong’s lawsuit, filed on February 23, 2023, was timely despite falling outside the traditional statutory window.
This judicial interpretation effectively opened a window of opportunity for millions of taxpayers who may have previously assumed their rights to claim refunds had expired. However, the IRS’s current handling of these protective filings—issuing mass "no consideration" or denial letters—threatens to negate the relief intended by the courts.
Chronology of the Dispute and Administrative Response
The timeline of this issue reflects a growing friction between the taxpayer advocate’s office and the IRS’s frontline processing operations.
- Early 2023: The Kwong ruling is finalized, signaling that COVID-19 disaster relief provisions have broader implications for refund statute expirations than previously interpreted by the IRS.
- Late 2023 to Early 2024: Anticipating a wave of claims, the National Taxpayer Advocate begins advising taxpayers that they may have until July 10, 2026, to file protective claims to preserve their rights.
- Mid-2024 to Present: The IRS begins receiving a deluge of Form 843, Claim for Refund and Request for Abatement, filings. As of the most recent reporting, the agency has received more than 275,000 such claims.
- Tuesday (Recent Blog Post): NTA Erin Collins publicly intervenes, calling for an immediate moratorium on the issuance of denial letters while the underlying legal questions remain subject to ongoing litigation.
Supporting Data: The Scale of the Impact
While the 275,000 claims currently sitting with the IRS represent a significant administrative burden, they are merely the "tip of the iceberg." According to the Taxpayer Advocate Service (TAS), this figure represents only a small fraction of the tens of millions of taxpayers potentially impacted by the Kwong decision.
The widespread nature of this issue suggests that a blanket administrative approach—specifically, one that prioritizes rapid denial—is ill-suited for the nuance of the Kwong precedent. The IRS’s current posture appears to be based on pre-existing criteria that do not account for the court-ordered extension of the statute of limitations. By adhering to rigid, automated processing guidelines, the agency is effectively adjudicating the merits of these claims using rules that the Court of Federal Claims has already suggested are subject to change.
Official Responses and the NTA’s Recommendations
In her recent blog post, Erin Collins did not mince words regarding the IRS’s current trajectory. She expressed deep concern that the agency is sending letters that "do not adequately account for the legal issues still being litigated."
The Call for Suspension
The NTA has explicitly requested that the IRS identify every taxpayer who has received a denial or "no consideration" letter regarding Kwong-related claims. Furthermore, she has called for the agency to:
- Review existing determinations: Audit the decisions made to date to identify where the agency’s internal criteria conflicted with the court’s interpretation.
- Take corrective action: Retroactively address or "re-open" claims that were improperly rejected due to the agency’s reliance on outdated screening criteria.
- Implement a holding pattern: Adopt a policy of delaying the adjudication of these specific claims until the legal questions are fully resolved. This, Collins argues, is consistent with the Internal Revenue Manual (IRM), which generally supports pausing action on protective claims while related litigation remains in progress.
Implications for Taxpayers: Rights and Risks
For the average taxpayer, receiving an IRS denial letter can be a source of significant anxiety and confusion. The language used in these notices is often formal and final, leading many to believe they have lost their legal standing entirely.
Don’t Abandon, Don’t Ignore
Collins’ primary advice to taxpayers is twofold: treat the correspondence with the gravity it deserves, but do not assume it is the final word. "If you received one of these letters, do not ignore it, but don’t assume it necessarily ends the matter either," she wrote.
However, there is a dangerous pitfall in this process. A formal notice of claim disallowance serves as the starting gun for a two-year period to file a refund lawsuit. Taxpayers who misinterpret the letter and attempt to engage in extended, informal discussions with the IRS may inadvertently let that clock run out. Since continued communication with the agency does not, in most cases, stop the two-year statute of limitations from ticking, taxpayers risk losing their right to sue while waiting for the IRS to change its mind.
The Risk of Premature Litigation
The NTA also warned that the IRS’s current behavior forces taxpayers into an untenable choice: either walk away from a potentially valid claim or incur the expense of filing a lawsuit to preserve their rights. This unnecessary litigation creates a burden for the taxpayer and clogs the court system, a result that could be avoided if the IRS exercised administrative restraint.
Looking Forward: A Call for Transparency
The situation underscores a broader need for transparency and consistency in how the IRS handles large-scale legal adjustments. When a court ruling creates a shift in how disaster relief laws are applied, the IRS must pivot its administrative processes to match.
For the IRS, the path forward requires a balance between processing efficiency and the duty to protect taxpayer rights. By continuing to issue denials based on superseded criteria, the agency is not only fostering public distrust but is also potentially acting in direct opposition to the judicial authority that defined the scope of these claims.
As the litigation surrounding Kwong continues to evolve, the IRS faces mounting pressure to update its guidance and screening criteria. Taxpayers are encouraged to monitor updates from the Taxpayer Advocate Service and consult with tax professionals to ensure that, despite the chaotic administrative response, their legal rights remain preserved.
In the final analysis, the NTA’s intervention serves as a necessary check on administrative overreach. It reminds both the IRS and the public that when the law is in flux, the agency’s duty is to pause, review, and ensure that the taxpayer is not sacrificed to the efficiency of an automated denial system. Until the IRS adopts a more measured approach, the responsibility remains with the taxpayer to navigate this precarious environment with caution, diligence, and expert guidance.
