Another 6511(h) case Fails to Reach the Promised Land

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One of the first posts I wrote addressed the issue of the extended period of time to file a refund claim allowed by IRC 6511(h). In that post I mentioned the long losing streak endured by taxpayers in published opinions. Last year it appeared that the case of Stauffer v. United States may have turned things around. I blogged about it here, here and here. In the Stauffer case the court refused to agree with the IRS regarding the need to obtain an opinion regarding the taxpayer’s capacity from a specific group of medical professionals mention in Rev. Proc. 99-21 which fails to include some of the most relevant medical professionals among those qualified to issue an opinion. The post earlier this year regarding the ABA’s comments regarding Rev. Proc. 99-21 provides some background on the procedures developed by the IRS.

Unfortunately for the estate of Stauffer, the IRS backed up after its loss regarding who may opine regarding financial disability and made a different argument. In the second version of the case to go forward to opinion, the IRS argues that Mr. Stauffer fails to qualify for the extended period available for taxpayers with financial disability because he gave a durable power of attorney to his son. The court finds that the son had the authority mentioned in the statute to assist Mr. Stauffer on financial matters and that authority causes the statute of limitations for filing a claim for refund to run prior to the actual filing in this case.

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As with the original opinion, this case went first to the magistrate judge. The magistrate judge determined that the statute of limitations ran because Mr. Stauffer’s son had the power to handle his financial affairs during much of the period between the due date of the return and the filing of the 2006 return claiming a refund of over $100,000. The district court upheld the decision of the magistrate judge but did so based on different reasons. At issue in this aspect of the case is the nature of the authorization provided by decedent to his son and what is required of someone with a durable power of attorney. See a prior post on the issue of authority.

In this case decedent gave to his son a durable power of attorney in 2005. The durable power of attorney stated that the POA could be withdrawn upon a written statement by decedent. It appears clear that the decedent did not provide to his son a written withdrawal of the POA although the decedent did write down that he intended to withdraw the POA. The decedent, however, did not deliver the written intention. The son did tell his sister that he was no longer acting as his father’s durable POA.

The court concludes that in 2005 the father had the capacity to execute the durable POA. It further concluded that the applicable law regarding the enforceability of the durable POA is the law of Pennsylvania and not federal common law. In holding that Pennsylvania law applies here, the court cited to Bova v. United States, 80 Fed. Cl. 449 (2008).

The court next looked at the issue of authority. It found that the durable POA gave the son the authorization to act on behalf of his father in financial matters for purposes of IRC 6511(h). The court acknowledged that the IRS does not define “authorized.” It looked at Black’s Law Dictionary which describes it as “[t]he official right or permission to act, esp. to act legally on another’s behalf….” The estate argued that authorized must be read in this context as requiring that the agent knew of the matter that requires action or it creates an absurd result. The court rejected this argument citing to Brockamp v. United States, 519 U.S. 347 (1997). It refers to the concerns of Congress that it not create a large equitable remedy that would engulf the tax refund system. Therefore, interpreting “authority” according to its plain meaning even when it produces an inequitable result follows the intention of the statute.

Here, the son had the authority to file the father’s return and that it all that the statute requires. It does not require that the son knew the returns needed to be filed.

Next the court looked at the facts to determine whether the father had revoked the POA. It finds that he did not applying Pennsylvania law. To be effective, revocation of a POA requires “actual notice” from the principal to the agent. The document itself required a written notification in order to revoke the POA. Since there was no actual notice as required by Pennsylvania law or written notification as required by the POA, the POA was not revoked and remained in effect from its creation. Because it remained in effect, the statutory language keeps the estate from asserting financial disability.

The result here shows how strictly the statute is interpreted. In the first opinion, the court looked at the Rev. Proc. and not the statute. The statute does not require a specific type of medical degree in order to opine regarding the taxpayer’s disability. This second opinion does not undercut the value of the first for those who seek to argue that strict compliance with the revenue procedure is not a prerequisite to relief. Nonetheless, in the issue of authority where the statute makes reference to the requirement, the court felt less ability to deviate from a strict interpretation of the statutory language.

Here, the facts showed a breech between the father and the son. They also showed that the financial actions taken by the son on behalf of the father during the father’s life were actions permitted by a narrow POA and not the durable POA. Nonetheless, the court declined to follow the estate to a legal place that would allow it to recover over $100,000 paid to the IRS by someone who lacked full capacity. IRC 6511(h) provides a statutory and not equitable remedy to parties seeking to hold open the refund statute of limitations. The Staffer case reminds us that refunds in financial disability case go to those with tight facts that meet the narrow requirement of the statute and necessarily not to those whose situation might cry out for relief.

 

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