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Financial Disability Argument Loses Because Taxpayer Husband Did not even Allege Disability

We have written several posts about the financial disability provision set forth in IRC 6511(h) which allows a taxpayer to file a refund claim after the normal statute of limitations has expired if the taxpayer missed the deadline because of a disabling condition. Some of the prior posts are here, here and here. Taxpayers have a long string of losses in the decided cases and the case of Rhandall Thorpe et ux. v. Dept. of Treasury et al.; No. 2:18-cv-04956 (D. N.J. 2019) adds to the list of taxpayer losses. As with the majority of reported cases, these taxpayers proceeded pro se. Based on the facts set out by the court, they would have benefited from the advice of counsel but the benefit may have been conceding their case earlier in the process.


The Thorpes filed returns for several years in which they self-reported the penalty for an early withdrawal from an IRA. At some point long after the expiration of the period for timely filing a refund claim, the Thorpes discovered that they need not have paid the penalty for making an early withdrawal from their retirement account and they sought to recover the payments that they made. The IRS denied their claims as untimely and they brought a suit for refund in district court.

As we have mentioned before in discussing these cases the IRS has not written any regulations in the two plus decades since IRC 6511(h) was enacted but it issued Rev. Proc. 99-21 setting out what it thought taxpayer should show in order to meet the requirements of IRC 6511(h). The Rev. Proc. requires that the taxpayer provide:

(1) a written statement by a physician (as defined in § 1861(r)(1) of the Social Security Act, 42 U.S.C. § 1395x(r)), qualified to make the determination, that sets forth:

(a) the name and a description of the taxpayer’s physical or mental impairment;

(b) the physician’s medical opinion that the physical or mental impairment prevented the taxpayer from managing the taxpayer’s financial affairs;

(c) the physician’s medical opinion that the physical or mental impairment was or can be expected to result in death, or that it has lasted (or can be expected to last) for a continuous period of not less than 12 months;

(d) to the best of the physician’s knowledge, the specific time period during which the taxpayer was prevented by such physical or mental impairment from managing the taxpayer’s financial affairs; and

(e) the following certification, signed by the physician:

I hereby certify that, to the best of my knowledge and belief, the above representations are true, correct, and complete.

(2) A written statement by the person signing the claim for credit or refund that no person, including the taxpayer’s spouse, was authorized to act on behalf of the taxpayer in financial matters during the period described in paragraph (1)(d) of this section. Alternatively, if a person was authorized to act on behalf of the taxpayer in financial matters during any part of the period described in paragraph (1)(d), the beginning and ending dates of the period of time the person was so authorized.

The Thorpes basically complied with none of the requirements set out by the IRS in the Rev. Proc. They also did not attack the Rev. Proc. and argue that the requirements in the Rev. Proc. were not entitled to deference since the IRS did not go through notice and comment in adopting the requirements listed there. Based on their facts such an argument would have been unavailing since they only argued that Mrs. Thorpe had a medical condition and made no effort to show why Mr. Thorpe could not have addressed the claim for refund sooner. In the paragraph setting out its conclusions the court summed up the weak facts in the case very nicely:

The plaintiffs have never complied with these requirements. First, they claim disability only as to Ms. Thorpe; for all that appears here, there is no impairment that prevented Mr. Thorpe from managing the couple’s affairs, and no showing was made to the IRS that he could not. See 26 U.S.C. § 6511(h)(2)(B) (no tolling where “individual’s spouse or any other person is authorized to act” for the person in financial matters).7 Second, they supply three letters from a physician, Dr. Martin Mayer, regarding her condition (DE 1-2, 1-3) These relate certain ailments, but they do not state anywhere that Ms. Thorpe was or is unable to manage her financial affairs, and they do not include the certification required by Rev. Proc. 99-21. Third, there is no indication that the required showing was made in connection with the refund claims themselves, as opposed to here in court. See Chan v. Commissioner, 693 F. App’x 752, 756 (10th Cir. 2017) (“The district court cannot make a determination of financial disability if [the taxpayer] did not first provide the requisite proof to the IRS.”). Fourth, I observe that this claim of medical disability is an anomalous one. The plaintiffs do not claim they were unable to deal with their financial affairs and file their returns; indeed, they did file their returns, using a paid preparer. Their claim, then, is not one of inability to cope with the demands of financial recordkeeping or filing, but merely that their returns contained a mistake.

This was a case that should never have been filed. Although the loss adds to the tally of taxpayer losses in IRC 6511(h) cases, the DOJ attorney would have expended little effort in preparing the responsive pleadings and motion to dispose of this case.

Problems exist with the Rev. Proc. which were exposed in the Stauffer, Kurko and Milton cases discussed here. Taxpayers with legitimate reasons for failing to meet a refund filing deadline should look to those cases in crafting arguments in support of IRC 6511(h) relief and should not be cowed by failures to follow all of the rules the IRS created 20 years ago without notice and comment and which do not internally make sense. The Thorpes’ problem was a basic problem with the statute because Mr. Thorpe provided no evidence of his disability and poor evidence of his wife’s. The case stands for little more than the statute means what it says. Future litigants who fail to provide evidence of the disability of all parties who could fix the mistake should expect similar results. Parties with real disability claims should continue to pursue their claims and litigate the intent of IRC 6511(h) if the IRS denies their claim administratively based on the narrow rules set out in Rev. Proc. 99-21.



ABA Tax Section Submits Comments on Rev. Proc. 99-21

We welcome guest blogger Caleb Smith who runs the tax clinic at University of Minnesota and who regularly blogs with us on designated orders. Recently, Caleb headed up a comment project for the ABA Tax Section on Rev. Proc. 99-21. In the almost 20 years after the passage of section 6511(h), the IRS has not issued regulations concerning that subparagraph and to my knowledge had not previously called for comments. The opportunity to comment on this provision is a very positive development and the group headed by the Caleb did an excellent job in their comments on this provision and how the IRS could change some of the rules it applies in administering the provision to follow more closely the purpose of the statute and to make it easier for taxpayers to comply without making it more difficult for the IRS to administer. The IRS is rightfully concerned that it does not want to open a floodgate of requests for relief that it would have to manage and concerned that it would not receive appropriate information to allow it to make the proper decision concerning relief to allow someone to claim a refund after, and sometimes long after, the statute of limitations had expired.  

Because I was aware that the ABA Tax Section was making these comments and because I wanted to highlight the specific issue of who can appropriately provide information to the IRS regarding someone’s disability, I also sent in comments on this issue on the narrow issue of who the IRS should listen to in making this decision. I am hopeful that a fresh look at this issue after 20 years of administration and litigation will allow the IRS the opportunity to improve upon the original procedures making it easier for it and taxpayers to appropriately determine and obtain relief. Keith

With all the focus on Graev, it can sometimes be easy to lose sight of the other, important issues that Procedurally Taxing has consistently blogged about. One such issue that, absent PT’s coverage, may not have been at the forefront of practitioner’s consciousness are the problems with Rev. Proc. 99-21 in determining “financial disability.” Much like supervisory approval in Graev, financial disability is a product of the 1998 IRS Restructuring and Reform Act that may not have been given quite its due in the decades after its enactment. Since the ABA Tax Section recently submitted comments to the IRS about concerns it has with the Rev. Proc. now seems a good time to get reacquainted with the issue.


The Crux of Rev. Proc. 99-21: Showing “Financial Disability”

The phrase “Financial Disability” probably doesn’t mean a lot to most tax practitioners (or doctors, or anyone else, for that matter). But for tax purposes, the concept is somewhat simple: under IRC 6511(h), financial disability of a taxpayer tolls the statute of limitations for claiming a refund. Thus, financial disability allows for refunds that would otherwise be time-barred. There aren’t a lot of exceptions to the mechanical (and mind-boggling) statutory provisions governing refund claims, so this provision may come as both a surprise and relief to many. The problem is largely in proving that one is financially disabled. And this, in turn, is problematic at least in part because of the IRS procedures for showing financial disability in Rev. Proc. 99-21.

Along with Christina Thompson of Michigan State and Eliezer Mishory of the IRS, I presented on this topic at the most recent Low-Income Taxpayer Clinic conference in Washington, D.C. On giving the presentation, I encountered two general reactions: (1) many practitioners expressed that they previously had no idea what “financial disability” was (some expected our presentation to be about collection issues, probably “financial hardship”) and (2) practitioners that did know what financial disability was shared very similar frustrations with how to prove it. Those frustrations almost all dealt with Rev. Proc. 99-21.

Procedurally Taxing has covered this issue numerous times. Early posts note the near-futility of taxpayers challenging the IRS in court on financial disability grounds. The trend, however, has shifted in taxpayer’s favor (posts here and here). Courts progressed from questioning Rev. Proc. 99-21 in Kurko v. Commissioner to outright holding for the taxpayer when the IRS failed to provide rationale for rules within Rev. Proc. 99-21 in Stauffer v. IRS.

IRS Request for Comments and the ABA Tax Section Submission

My hope is that, in the aftermath of Kurko and Stauffer, the IRS will be more receptive to changes to Rev. Proc. 99-21 because there is little reason to stick with a sinking ship. The general criticisms in the ABA comments could be summarized as:

(1) Rev. Proc. 99-21 is not faithful to the intent of the enabling statute, stemming largely from the Congressional override of the Supreme Court in Brockamp;

(2) Changes are needed to ensure that vulnerable taxpayers are protected and any such change should, at the minimum, make it likely that the taxpayer in Brockamp would be found “financially disabled”; and

(3) Rev. Proc. 99-21’s disallowance of psychologists as a professional that can attest to a mental impairment is poorly reasoned, poorly drafted, and vulnerable to challenge in Court.

The suggestions provided to remedy these issues were sensitive to IRS worries that changes to Rev. Proc. 99-21 may open floodgates for late refund claims that cannot be quickly resolved, or that may allow the simply negligent to cash-in. The four recommendations are meant to balance legitimate IRS concerns while also protecting taxpayer rights and getting to the correct outcome. Some of the recommendations work towards administrative ease (publishing a list of prima facie section 6511(h) applicable medical conditions), while others focus on the realities that “financially disabled” (often low-income) taxpayers face (like poor medical records and greater involvement with psychologists and social workers than medical doctors).

I encourage readers to take a look at the submitted comments and to keep financial disability on their radar in the future. It can mean quite a lot to the more vulnerable individuals in society.



Your Psychologist Might Be a Physician, but Your Counselor is Not (Under Section 6511(h))

Last week, a Magistrate Judge for the District Court of the Western District of Washington in Milton v. United States (sorry, can’t find the order for free yet) granted the IRS’ motion for reconsideration on a refund claim based on financial disability.  The order may place some restrictions on the direction financial disability cases under Section 6511(h) have been headed.  We have covered this topic in great detail, including some small breakthroughs taxpayers have made in claiming financial disability under Section 6511(h).  Most recently, Keith wrote about the potential taxpayer victory in Stauffer v. IRS, where the Court declined to afford Rev. Proc. 99-21 deference regarding the definition of physician.  Keith’s wonderful write up can be found here. In Keith’s post he links to several of our prior posts on the subject, including a comprehensive two part post on the Tax Court case, Kurko, dealing with the same general concept written by Carlton Smith.  In addition, for those who want to learn more about Section 6511(h),  Chapter 11.05[2][b] of SaltzBook was recently rewritten to cover this topic in great detail.

As Keith notes in his write up in Stauffer, that case opened the door for potential relief under Section 6511(h) regarding the use of a psychologist to show disability, but this would have to be approved by the District Court (there is other Stauffer litigation, unfortunately alleging that Mr. Stauffer’s girlfriend at the end of his life may have inappropriately taken $700,000 from him).  The IRS filed objections to the ruling in late February, which were replied to in early March.  I have not found any other filings or orders in that case.


I will borrow heavily from Keith’s post to frame the issue and the Court holding in Stauffer before touching on the holding in Milton:

The IRS filed a motion to dismiss for lack of jurisdiction because the claim for refund was untimely…  Examining the statute led to an examination of Rev. Proc. 99-21 which “sets forth in detail the form and manner in which proof of financial disability must be provided.”  The Rev. Proc. states that the claimant must submit “a written statement by a physician (as defined in section 1861(r)(1) of the Social Security Act, 42 U.S.C. 1395x(r), qualified to make such determination…”  The court noted that the Rev. Proc. does not define “physician” but borrows the definition from the Social Security statute.  The reference to section 1861(r)(1) creates confusion because that section does not have subsections.  Instead it has one large paragraph defining physician that includes five categories: (1) “a doctor of medicine or osteopathy,” (2) a doctor of dental surgery or of dental medicine,” (3) “a doctor of podiatric medicine,” (4) “a doctor of optometry,” and (5) “a chiropractor.”

*      *       *

The court notes that the Rev. Proc. does not receive Chevron deference because it expresses the view of one employee and not the view of the agency.  The Rev. Proc. receives deference “only to the extent that those interpretations have the power to persuade.”  The court then explains how the Rev. Proc. fails to persuade…

The court also cites to case law accepting the opinion of the treating psychologist while noting that the SSA and IRS definitions of disability are virtually identical.  So, the limitation argued by the IRS in its Rev. Proc. does not make sense and is inconsistent with the SSA rules it apparently sought to mimic…

Without a reasoned explanation and in light of the fact that the opinion of psychologist in these types cases is viewed as acceptable in other contexts, the Rev. Proc. does not provide persuasive authority.  The court states “I conclude that the defendant’s interpretation of the term ‘physician’ in Revenue Procedure 99-21 is not entitled to deference here.  I conclude further that to the extent the psychologist’s statement the plaintiff submitted supports a financial disability based on a mental impairment, the IRS was not required to reject it on the ground that it did not constitute a ‘physician’s statement.

In Stauffer, I believe the Court concluded that subsection (1) was the applicable definition the Rev. Proc. was seeking to use, although that is perhaps unclear, which Keith explains in his post.  Under (1), the definition is “a doctor of medicine or osteopathy.”  As quoted from Keith’s post above, the Court found that the Rev. Proc. was not persuasive on this matter, and that there was clear reason to believe a psychologist should be allowed to opine on financial disability, especially as regard mental impairment.

In Milton v. United States, the taxpayer sought to push this argument slightly further.  Procedurally, the IRS had previously sought to dismiss the case for lack of jurisdiction.  The Court denied that motion in May, which can be found here.  That order did not focus on financial disability.  Instead, the Court held as follows:

Plaintiff waited until January 2014 to file his tax return for his income tax liabilities from 2000… Plaintiff asserts that he filed a subsequent late return in May 2014 for the same tax liabilities from 2000… Defendant concedes that the late return filed in 2014 constitutes both a return and a refund claim… Accordingly, Defendant appears to concede that Plaintiff meets the requirements of § 6511(a) because Plaintiff “duly filed” his refund claim within three years of his tax return. Because Plaintiff meets § 6511(a)’s time limitation, this Court may exercise jurisdiction over the lawsuit…

Defendant offers no authority to prove that § 6511(b)(2)(A)—the “lookback” period—has any bearing on subject-matter jurisdiction. The remaining arguments in Defendant’s brief are more appropriately analyzed in a motion for summary judgment.

If the Section 6511(h) argument was initially briefed, the holding on jurisdiction above would have rendered it moot.  I did not pull the briefs.  We have discussed whether the Section 6511(b) look back is jurisdictional or not.  I blogged the case Boeri v. United States, where the Federal Circuit determined it was not.  Carl Smith has forwarded to me what I believe the Ninth Circuit’s last statement on this issue was, which can be found in Reynoso v. United States.  The Ninth Circuit held it was jurisdictional, but did so without reviewing more current SCOTUS holdings limiting use of that term.  Given the Ninth Circuit’s holding, the Service was understandably unhappy with this result, and filed a motion for reconsideration.  The Judge granted the motion, determining that Section 6511(b)(2)(A) was jurisdictional, and the refund claim was outside of the time frame.

The taxpayer, in response, made an argument that he was disabled under Section 6511(h).  It does not specify his disability, but he submitted a statement from “Tim Liddle, a ‘MA, LMHC, MAC.’”  Those designations, I believe, are a Masters of Arts (presumably in counseling), a Licensed Mental Health Counselor designation, and either a Master Addiction Counselor or a Master of Arts in Counseling.  He was clearly a trained counselor who was assisting the taxpayer for some mental health issues.

I found two points of the holding here interesting.  First, the Court states “physician” under Rev. Proc. 99-21 is “a doctor of medicine or osteopathy, a doctor of dental surgery or dental medicine, a doctor of podiatric medicine, a doctor of optometry, or a licensed chiropractor. 42 U.S.C. § 1395x(r).”  As Keith noted in his post, it is unclear if this entire paragraph is intended to apply, or only “a doctor of medicine or osteopathy.”  The Court did not provide its rationale.  This could be an interesting issue moving forward with other cases.  It would also be fairly interesting to have a podiatrist or chiropractor provide an opinion about a taxpayer’s mental health.

And, second, the Court found that none of the above designations qualify as a physician, as it is defined.  This was a “fatal error”, finding that Congress deliberately drafted the definition of “physician” narrowly, and the matter was dismissed for lack of subject matter jurisdiction.  While the District Court for Massachusetts was willing to look at the SSA procedures in determining disability, the Washington court did not provide the same review.  I believe counselor notes can be used as evidence to show disability in an SSA hearing (if the requesting party consents to disclosure), although I am not certain if they are sufficient without other evidence.

The strides made in Stauffer and Kurko make sense.  Someone suffering from mental illness will likely see a psychologist.  For that person, it may be the absolutely 100% correct treatment option, and the failure to have contemporaneous interaction with a physician should not preclude them from making the claim.  It is not surprising, however, that this court did not extend the rationale to counselors at this point.

A Crack in the Glass Ceiling – Victory in a Financial Disability Case

We have reported before here, here, here and here about the IRS’ unbroken string of victories in cases involving a claim of financial disability.  The first two posts listed in this string, a two-part series by Carl Smith, has a particularly important connection to the opinion reported in this post. While taxpayers have obtained relief from the statutory period for filing a refund claim in administrative decisions by the IRS, no one had won a 6511(h) case in court – until now and this victory is one that opens the door of the court but does not grant relief.  In Hoff Stauffer, Administrator of the Estate of Carlton Stauffer v. IRS, a magistrate judge in the District of Massachusetts has recommended that the court has jurisdiction to hear a case involving 6511(h) in the face of a motion to dismiss for lack of jurisdiction.

Because this is the recommendation of a magistrate judge, the district court must accept it before it becomes final; however, the decision here coupled with the order entered by Judge Gustafson in another Boston case, Kurko v. Commissioner, suggests that perhaps a new day is dawning for those seeking relief for financial disability.  Because the IRS has only issued guidance in the form of an onerous revenue procedure and has never allowed public comment on the now 20-year old provision of the law and because most of the cases have been brought pro se, it has taken a long time to crack the ceiling and take steps toward meaningful administration of this provision.


Carlton Stauffer passed away in 2012 at the age of 90.  His son, Hoff, discovered that the father had not filed a return since 2006 and proceeded to prepare the outstanding returns as was his fiduciary duty.  In 2013, Hoff Stauffer filed several back returns for his father’s estate and requested refund of an overpayment exceeding $100,000 for 2006.  The IRS disallowed the claim as untimely and declined to hold open the statute using 6511(h).  As a part of the process of appealing the denial of the claim, Hoff submitted a written explanation from a licensed psychologist who had treated his father from 2001 until his death.  The psychologist explained in his report that the father had a variety of mental and physical conditions which prevented him from properly managing his affairs from at least 2006 until his death.  The IRS rejected the explanation, citing to Rev. Proc. 99-21 which requires a statement from a physician and not a psychologist.

Tom Crice, a local Boston attorney whom I had met because of his pro bono work on behalf of low income taxpayers, brought suit for the estate after the denial of the claim.  Tom practiced as a criminal prosecutor and an actuary before settling into tax controversy work.  His background may have helped in the attack he took on Rev. Proc. 99-21.  The IRS filed a motion to dismiss for lack of jurisdiction because the claim for refund was untimely.  This caused the Court to examine 6511(h) which suspends the time frame if the claimant was financially disabled.  Examining the statute led to an examination of Rev. Proc. 99-21 which “sets forth in detail the form and manner in which proof of financial disability must be provided.”  The Rev. Proc. states that the claimant must submit “a written statement by a physician (as defined in section 1861(r)(1) of the Social Security Act, 42 U.S.C. 1395x(r), qualified to make such determination…”  The court noted that the Rev. Proc. does not define “physician” but borrows the definition from the Social Security statute.  The reference to section 1861(r)(1) creates confusion because that section does not have subsections.  Instead it has one large paragraph defining physician that includes five categories: (1) “a doctor of medicine or osteopathy,” (2) a doctor of dental surgery or of dental medicine,” (3) “a doctor of podiatric medicine,” (4) “a doctor of optometry,” and (5) “a chiropractor.”

The Court states that it assumes the IRS intends to refer to the first category but notes that the Rev. Proc. introduces further confusion by linking section 1861(r)(1) to 42 U.S.C. 1395x(r) because the latter provision “essentially tracks verbatim the wording and format of section 1861(r), but does not contain a corresponding reference to a subsection one.  Indeed, section 1395x(r), like section 1861(r), does not formally contain any subsections.”  This raises questions of whether the reference to 1861(r)(1) is a scrivener’s error or intended to narrow the scope of physician.

The court notes that the Rev. Proc. does not receive Chevron deference because it expresses the view of one employee and not the view of the agency.  The Rev. Proc. receives deference “only to the extent that those interpretations have the power to persuade.”  The court then explains how the Rev. Proc. fails to persuade:

section 6511(h) allows a disability to be based on a showing of a  ‘mental impairment’ and Revenue Procedure 99-21 directly undermines that goal where it demands a note from a physician but then defines that term to exclude a whole class of professionals generally considered competent to opine on the existence of a mental impairment.  On the record before the Court, there is no evidence that the IRS has considered the implications of its interpretation of the word ‘physician’ as used in the revenue procedure.  On the contrary, and as noted, Revenue Procedure 99-21 was drafted principally by a single IRS employee who without elaboration or explanation selected a definition of ‘physician’ as used by the SSA.  In the absence of additional information, there is just no basis to assess the soundness of the IRS’s interpretation of the work ‘physician’ in Revenue Procedure 99-21.

The court goes on to say that if the IRS sought to find someone competent to render an opinion on a physical or mental impairment it could have looked elsewhere in the rules governing Social Security cases.  Social Security regulation 20 CFR 404.1527(a)(2) provides “medical opinions are statements from physicians and psychologists or other acceptable medical sources that reflect judgments about the nature and severity of your impairment(s)….”  The court also cites to case law accepting the opinion of the treating psychologist while noting that the SSA and IRS definitions of disability are virtually identical.  So, the limitation argued by the IRS in its Rev. Proc. does not make sense and is inconsistent with the SSA rules it apparently sought to mimic.

The court states that the IRS may have reasons for limiting the opinions in financial disability cases to physicians but it does not explain those reasons in the Rev. Proc.  Without a reasoned explanation and in light of the fact that the opinion of psychologist in these types cases is viewed as acceptable in other contexts, the Rev. Proc. does not provide persuasive authority.  The court states “I conclude that the defendant’s interpretation of the term ‘physician’ in Revenue Procedure 99-21 is not entitled to deference here.  I conclude further that to the extent the psychologist’s statement the plaintiff submitted supports a financial disability based on a mental impairment, the IRS was not required to reject it on the ground that it did not constitute a ‘physician’s statement.  Consequently, I find no basis on this record to deem the plaintiff’s claim for refund untimely under section 6511(h), and thus do not agree that the Court lacks jurisdiction to hear the plaintiff’s suit.”

The IRS made a couple more arguments that the court rejected.  First, it argued that the psychologist’s statement failed because the estate did not submit the statement at the same time as the claim for refund but only submitted it with the initial appeal.  The court noted other cases that had rejected this technical argument by the IRS stating that “the practice is to accept the missing information at a later stage so it and the taxpayer’s claim may be considered.”

Second, the IRS argued in a footnote that the psychologist was unqualified to opine on the disability because he appeared to base the opinion in part on the taxpayer’s physical ailments and this is outside of the psychologist expertise.  The court rejects this argument because the sufficiency of the statement was not before the court and because the mental impairments alone may have been sufficient to support the financial disability determination.

Under Federal Rule of Civil Procedure 72(b), the IRS was to file an objection to this recommendation within 14 days of the receipt of the report.    On February 27, 2017, the IRS filed its objection to the magistrate judge’s report.  It took issue with just about every aspect of the report but most strongly objected to the failure of the court to bow down to Rev. Proc. 99-21 as controlling:

The United States has numerous objections to the Report. First, the United States objects to Magistrate Judge Cabell’s interpretation of Congress’ delegation to the Secretary. The Report misapprehends the plain language of § 6511(h) and the Secretary’s authority under that statute. The Secretary did what Congress told it to do and, as discussed in greater detail below, there is no reason to expand § 6511(h) beyond what is prescribed in Rev. Rule. 99-21, which is something that the Report attempts to do. Neither the language of § 6511(h) nor Rev. Proc. 99- 21 support Magistrate Judge Cabell’s view that a psychologist is permitted to medically determine a mental impairment. The Report’s discussion regarding the proper level of deference afforded to Rev. Proc. 99-21 is simply irrelevant pursuant to § 6511(h). In short, a psychologist’s statement is invalid pursuant to § 6511(h). Accordingly, the plaintiff’s failure to comply with Proc. 99–21 is fatal to its refund claim because federal courts have no jurisdiction over a tax refund suit until a claim for refund or credit has been “duly filed” with the Secretary. Second, the United States objects to Magistrate Judge Cabell’s conclusion that the Eighth Circuits decision in Abston v. Commissioner, 691 F.3d 992 (8th Cir. 2012), is distinguishable from the case at bar. Contrary to the Report, the Eighth Circuit, as well as numerous other federal courts, have found that taxpayers cannot establish a medical disability under § 6511(h) without submitting a “doctor’s note” as required by Rev. Proc. 99-21. The plaintiff did not provide a doctor’s note as it was required to do. Third, the United States objects to Magistrate Judge Cabell’s rejection of the United States’ alternative argument. Even if the psychologist’s statement at issue could be considered a “doctor’s note,” it continues to be deficient pursuant to Rev. Rule 99-21.

Plaintiff’s response to the IRS motion is also attached.

While Judge Gustafson cracked the glass in the 6511(h) ceiling with his order in the Kurko case, Magistrate Judge Cabell punches his fist through the glass.  This may allow others to follow and finally break the choke hold in this area.  Perhaps the IRS will consider, after two decades, the idea of getting comments on what a reasonable rule would look like and talk to the representatives who assist individuals with financial disability.  Taxpayers claiming this exception, by definition, face difficulties.  Rev. Proc. 99-21 adds to those difficulties and does not provide a reasonable basis for working through this issue.  The facts here follow fairly closely the facts in the case Brockamp v. United States, 519 U.S. 347 (1997), in which another 90 year old gentleman failed to timely file a refund claim and the failure was discovered by his executor after the ordinary statute of limitations had expired.  The facts of that case so moved Congress that it created the statutory exception in 6511(h).  Let’s work together to find a reasonable way to allow those with valid claims for refund and legitimate reasons for filing late to get their money without imposing undue barriers.



When CDP is Separate From Process That is Due

A recent Tax Court order in the case of Zapata v Commissioner reminds me that there are still a number of issues unresolved with Collection Due Process (CDP) and that the value of the CDP hearing itself is often dependent on how much effort an Appeals employee puts in to the proceedings.

Zapata’s facts are not that uncommon for people down on their luck or health and who sometimes ignore or are unable to meet their tax obligations. Zapata filed a 2002 tax return reflecting a liability; eventually IRS began enforced collection in the form of a notice of intent to levy which triggered his CDP rights. The proposed levy also triggered him in 2009 to file a 2004 tax return; that return had an overpayment that Zapata sought to apply to the 2002 liability. At the CDP hearing, the Appeals sustained the levy, and Zapata filed a petition to Tax Court.


The statute of limitations under Section 6511(b)(2) would normally serve to bar the claim, but the financial disability rules can serve to toll the statute. When the Tax Court had the matter originally it “remanded the case so that the Commissioner could conduct a supplemental CDP hearing to consider whether Mr. Zapata’s medical condition tolled the statute on his claimed 2004 overpayment, which could possibly free the overpayment to satisfy the 2002 liability.” Carl Smith wrote a pair of post slast year, here and here, involving the CDP case of Sarah Kurko where Judge Gustafson remanded her case for a determination of financial disability. Both Keith and Carl have written on financial disability and links to their articles can be found in Carl’s posts.

The recent Tax Court order in Zapata that followed the remand of the case notes that “[a]fter a second hearing, the Commissioner stuck to his initial determination to go forward with the levy. The Commissioner has now moved for summary judgment and Mr. Zapata has not responded.”

One of the interesting issues raised in the order is what was the appropriate standard of review that the Tax Court should use. In CDP cases, liability questions are reviewed de novo; collection matters are reviewed on an abuse of discretion basis. What about questions of the proper crediting of a liability or the statute of limitations applicable to a refund claim? Are those matters where the liability is at issue? The order notes that is an unsettled area:

This has turned out to be a difficult question that remains unsettled in our Court, Estate of Adell v. Commissioner, 107 T.C.M. (CCH) 1463, 1466 (2014) (delicately noting “lack of uniformity” in cases). If the proper crediting of one year’s overpayment is an issue of the “underlying liability,” the standard would be de novo. If it isn’t, the standard would be abuse of discretion. See, e.g., Kovacevich v. Commissioner, 98 T.C.M. (CCH) 1, 4-5 (2009). This would mean that we look to see if the Commissioner’s decision was based on an error of law, rested on a clearly erroneous finding of fact, whether he ruled irrationally, or otherwise acted arbitrarily or capriciously. Antioco v. Commissioner, 105 T.C.M. (CCH) 1234, 1237 (2013); Woodral v. Commissioner, 112 T.C. 19, 23 (1999).

In any event, the order avoids that muck because it states that the answer to that question makes no difference to the resolution. To the Tax Court the key issue was that Appeals “must verify that the requirements of applicable law and administrative procedures were met, consider issues properly raised by the taxpayer, and determine if the collection action fairly balances the need for efficient tax collection with the taxpayer’s legitimate concerns. See IRC 6330(c)(3).” (emphasis in original)

The order notes that the administrative record reflected a note from Zapata’s doctor that Zapata submitted at the supplemental hearing; unfortunately, as we have discussed before, IRS has set out detailed rules as to what information those notes should contain and the letter Zapata’s doctor issued, under any standard of review, was lacking:

It did not, for example describe Mr. Zapata’s impairment, link it to an inability to manage his financial affairs, or provide any specific time period when he could not manage his affairs.

As a result, the Tax Court granted the IRS’s motion for summary judgment, and presumably the IRS levy will proceed at this point. Despite sustaining the collection action, the order implicitly criticizes Appeals for failing to do more to inform Zapata as to why it felt that he was not entitled to take advantage of the financial disability tolling provision:

We are somewhat concerned that the Appeals officer appears to have barely acknowledged the subject during her communication with Mr. Zapata’s power of attorney, and even told the power of attorney that the “only concern” for the hearing was the 2002 tax debt and that the 2004 refund should be addressed with another department. The CDP hearing might have been a helpful time to discuss the medical condition and the highly specific requirements for a doctor’s note, but we acknowledge that the Appeals officer is obligated only to consider the issue.

This to me is a crucial part of the problem with the CDP procedures, and many IRS compliance actions (let alone the possible unfairness of the rules restricting the use of the financial disability provisions). Compliance is not only about getting to the right answer; it can be a chance to educate taxpayers and hopefully engender a better sense of understanding about tax obligations. By failing to discuss the reasons why it was rejecting the letter Appeals missed an opportunity with Zapata. Part of the underlying concern with due process is ensuring that someone gets an adequate explanation as to why the government may be taking his property. Even if the result is correct but the government fails to explain itself then the outcome is really not an IRS victory but just one more lost opportunity to treat taxpayers with the respect that they should receive when challenging in good faith the actions of their government.

Keith offered the observation that the issue of providing strong notice is especially present in financial disability cases because those taxpayers are the most vulnerable. Keith continued, noting that “they qualify, or potentially qualify, for financial disability status specifically because of their inability to navigate life’s vicissitudes. If any taxpayers deserve a better explanation it is taxpayers seeking financial disability.”





Does Rev. Proc. 99-21 Validly Restrict Proof of Financial Disability, for Purposes of Extending the Refund Claim SOL, to Letters From Doctors of Medicine and Osteopathy? Part 2

Yesterday, frequent guest blogger Carl Smith took us through the statute and Rev. Proc. 99-21 in setting the scene for Judge Gustafson’s March order in the Kurko case and its importance. Today, Carl picks up where he left off and shows how the current revenue procedure misses the mark. Because the IRS has never given the public the opportunity to comment on the procedure and because it does not explain how it decided upon the procedure, the procedure not only needs changing but also appears vulnerable to attack. That attack will have to come in some future case, though, as the IRS recently conceded the issue as presented in Kurko – without first getting a judicial ruling either way on the issue. Keith

Proof of “Disability” for SSDI Purposes

I am no expert in SSDI disability benefits litigation, so I went to one for information.  Prof. Toby Golick of Cardozo has for decades headed a Cardozo clinic that regularly wins SSDI benefits cases before the Social Security Administration.


Toby told me the following:

The language of § 6511(h) derives from the SSDI provisions at 42 U.S.C. § 423(d)(1)(A), which generally defines “disability” as “inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months”. (The same definition is used for SSI benefits, but without the requirement of past FICA contributions for sufficient quarters.)  There are two separate questions, however — (1) whether the individual has a physical or mental impairment and (2) whether the individual’s impairment prevents her from working.  Regulations specify that to establish an impairment, evidence is needed from an “acceptable medical source”, limited to licensed physicians, osteopaths, licensed psychologists, optometrists, podiatrists, and speech pathologists. 20 C.F.R. § 404.1513(a). After the impairment is established, the agency will consider pretty much anything to establish the effect of the impairment on the ability to work.  20 C.F.R. § 404.1513(d) lists the following sources for the second inquiry:

(1)  Medical sources not listed in paragraph (a) of this section (for example, nurse-practitioners, physicians’ assistants, naturopaths, chiropractors, audiologists, and therapists);

(2)  Educational personnel (for example, school teachers, counselors, early intervention team members, developmental center workers, and daycare center workers);

(3)  Public and private social welfare agency personnel; and

(4)  Other non-medical sources (for example, spouses, parents and other caregivers, siblings, other relatives, friends, neighbors, and clergy).

20 C.F.R.  § 404.1527 explains how opinion evidence of disability is weighed, with more, or sometimes controlling, weight being accorded to treating physicians.  Toby says:  “The bottom line is that the Social Security disability determination is (wisely) based on all the relevant evidence, not merely a physician certification.”  Why didn’t the IRS adopt the SSDI procedures for proving disability?

Proof of Disability for Purposes of Early Withdrawal Penalty at § 72(t)

An exception to the 10% penalty for early withdrawals from qualified retirement plans has similar language to § 6511(h).  Section 72(t)’s penalty does not apply to distributions attributable to a taxpayer’s being disabled within the meaning of § 72(m)(7).  § 72(t)(2)(A)(iii).  Section 72(m)(7) describes “disability” largely the same was as § 6511(h) does and states:  “An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such manner as the Secretary may require.”  While the IRS has promulgated a regulation at § 1.72-17A(f) that elaborates on the definition of “disability” for this purpose, there is nothing in the regulation that states how disability must be proved, and no Rev. Proc. fills that gap either.  Case law suggests that the taxpayer’s own testimony in Tax Court, coupled with some testimony from a medical professional (of a type not specified) is helpful to the court’s making a de novo determination of qualification for this exception – as indeed was indicated just this week in Trainito v. Commissioner, T.C. Summary Op. 2015-37, where the court, while accepting into evidence medical records of a diabetic coma, bemoaned the absence of any additional medical records — or testimony from medical professionals — regarding the taxpayer’s diabetes or alleged depression. Why isn’t it good enough for proving disability for purposes of extending the refund claim statute of limitations to just introduce taxpayer testimony and (unspecified) medical personnel testimony at trial, as is done in section 72(t) cases?

Proof of Disability for Purposes of “Reasonable Cause” for Penalties

In setting the § 6511(h) financial disability procedures, the IRS should also have considered the much more lax rules that apply to a very similar situation — when a taxpayer seeks relief from a late-filing penalty (say, at § 6651(a)(1)) on the grounds of “reasonable cause and not willful neglect”.  In United States v. Boyle, 469 U.S. 241 (1985), the Supreme Court observed, in dicta, that “disability alone could well be an acceptable excuse for a late filing.”  Id., at 248 n.6.  For relief on the basis of “reasonable cause”, regulations only state that

a taxpayer who wishes to avoid the addition to the tax for failure to file a tax return or pay tax must make an affirmative showing of all facts alleged as a reasonable cause for his failure to file such return or pay such tax on time in the form of a written statement containing a declaration that it is made under penalties of perjury. Such statement should be filed with the district director or the director of the service center with whom the return is required to be filed . . . . [Treas. Reg. § 301.6651-1(c)(1)]

There is nothing in the regulations requiring that, for proof of reasonable cause on the ground of disability or other ill health, any medical-field worker provide a letter.  However, in practice, I have often had my Cardozo Tax Clinic clients obtain a letter from some third-party medical worker to attach to any submission under the regulation.  In my experience, such letters are fairly easily obtained (in the case of mental health issues) from a therapist who the taxpayer regularly sees, but are hard to get from doctors (such as psychiatrists), who have busy practices, see the patient infrequently, and who are uncomfortable in making any statement beyond the taxpayer’s medical diagnosis.  For examples of letters from physicians that were too waffly to qualify taxpayers for tolling under § 6511(h), see. e.g., Pleconis v. IRS, 2011 U.S. Dist. LEXIS 88471 (D.N.J. 2011); Henry v. United States, 2006 U.S. Dist. LEXIS 93038 (N.D. TX. 2006).

Even the requirement that the taxpayer’s reasonable cause statement for removing penalties must be made under penalties of perjury is permitted to be ignored by IRS employees.  The requirement that such a statement be sworn is not included in IRS Notice 746 (“Information About Your Notice, Penalty and Interest”) (rev. 2011), which states:

Reasonable Cause. The law lets us remove or reduce the penalties we explain in this notice if you have an acceptable reason. If you believe you have an acceptable reason, you may send us a signed statement explaining your reason. We will review it and let you know if we accept your explanation as reasonable cause to remove or reduce your penalty.

And the Internal Revenue Manual indicates that for some, unspecified small penalty amounts (the figure is redacted), IRS employees may find reasonable cause to exist either (1) even where a reasonable cause statement is unsigned or (2) based only on oral conversations with the taxpayer.  See IRM (rev. 8/5/14).

Finally, there is no requirement that the reasonable cause statement be filed with the tax return, although it is recommended that the taxpayer do so in the instructions.  See, e.g., 2014 Form 1040 Instructions at p. 92.

When a reasonable cause statement is not accepted by the IRS (or not received), it is typical in court cases (deficiency or CDP) that the court decides the issue of reasonable cause because of physical or mental health reasons on a de novo record and under a de novo standard.   For examples of where the Tax Court has found reasonable cause for late filing because of health issues, see, e.g., Meyer v. Commissioner, T.C. Memo. 2003-12; Shaffer v. Commissioner, T.C. Memo. 1994-618; Carnahan v. Commissioner, T.C. Memo. 1994-163.

Proof of Physical and Mental Health Issues in Innocent Spouse Cases

When a person files for innocent spouse relief under § 6015, he or she does so on a Form 8857.  Under section 4.03(g) of Rev. Proc. 2013-34, 2013-2 C.B. 397, one of the factors considered by the IRS in the case of “equitable” relief under subsection (f) is the requesting spouse’s mental or physical health.  Of this factor, the IRS wrote in that section as follows:

Whether the requesting spouse was in poor physical or mental health. This factor will weigh in favor of relief if the requesting spouse was in poor mental or physical health at the time the return or returns for which the request for relief relates were filed (or at the time the requesting spouse reasonably believed the return or returns were filed), or at the time the requesting spouse requested relief. The Service will consider the nature, extent, and duration of the condition, including the ongoing economic impact of the illness. If the requesting spouse was in neither poor physical nor poor mental health, this factor is neutral.

Note that there is no requirement that any medical professional submit a letter (with the Form 8857 or at a later time) that discusses the taxpayer’s health issues.

When § 6015(f) cases are litigated in the Tax Court, the Tax Court decides the issue of equity both on a de novo standard and a de novo record. Porter v. Commissioner, 130 T.C. 115, 117 (2008) and 132 T.C. 203, 210 (2009), and “consults”, but is not bound by, the Rev. Proc.’s factors.  Pullins v. Commissioner, 136 T.C. 432, 439 (2011).  When health issues are raised, the Tax Court does not require any medical testimony (though, I am sure it might appreciate some in close cases).  Indeed, in the Pullins case — decided by Judge Gustafson — the judge wrote as follows about the physical or mental health factor:

There is no evidence that Ms. Pullins was ill when she signed the returns in issue or when she requested relief in April of 2008. See id. sec. 4.03(2)(b)(ii). This factor ordinarily would not weigh in favor of or against granting relief in the IRS’s analysis. See id. sec. 4.03(2)(b). However, having observed Ms. Pullins at trial in September 2009, we conclude that she is now disabled and unable to work and earn income and that she may be permanently so. We find that her obviously impaired health at the time of the trial de novo is relevant, and we conclude that this factor weighs in favor of granting relief. [Id. at 454]

So, just the judge eyeballing and listening to the taxpayer at trial is apparently enough evidence to prove health to be a positive factor for innocent spouse relief under subsection (f).

It is frankly baffling why the IRS should have imposed a stricter proof regime in Rev. Proc. 99-21 for § 6511(h) for obtaining financial disability relief from the refund claim statute of limitations than the equally-consequential-to-the-government determinations made concerning whether a taxpayer is entitled to SSDI, had reasonable cause for avoiding a late-filing penalty, or was entitled to innocent spouse relief.  In any redo of the required § 6511(h) procedures, I would urge the IRS to consider three things:  (1) whether it is really necessary to obtain a letter from a medical professional, (2) who that professional might be, and (3) when that letter must be provided to the IRS.  It is this last issue that leads to my final observations.

The Requirement to Attach Proof of Financial Disability to the Return 

One of the odd things about the Kurko case was that neither the IRS nor the judge seems to object to the late receipt of a “physician” letter and statement from the taxpayer.  Under the Rev. Proc. quoted in yesterday’s post, both are required to be attached to the refund claim (in this case, that would be Ms. Kurko’s late original 2008 income tax return, which was filed in mid-2013).  In the supplemental notice of determination, the Settlement Officer did not raise late receipt as a reason for turning down the benefits of § 6511(h) tolling.  Since she did not do so, the doctrine of SEC v. Chenery, Corp., 318 U.S. 80, 93-95 (1943), which prohibits a court from affirming on a ground not articulated by the agency, applies and would have stopped the judge and IRS attorneys from raising the lateness argument. See Salahuddin v. Commissioner, T.C. Memo. 2012-141 at *16 (citing Chenery and stating: “our role under section 6330(d) is to review actions that the IRS took, not the actions that it could have taken”) (Gustafson, J.).

In any redo of Rev. Proc. 99-21 (hopefully through the notice and comment regulation process), I would hope that the IRS reconsiders whether it is really too draconian a sanction to impose this timing requirement on taxpayers — one that is not imposed in the penalty “reasonable cause” or innocent spouse areas.  Remember that these § 6511(h) taxpayers, even if they have somehow managed to file a late return, are (because of their illnesses) likely not good about reading or complying with IRS instructions that would tell them about this proof timing requirement.  These are the last taxpayers on whom I would impose a requirement that everything be perfect on the return when it is filed.

And, remember that the Supreme Court has previously held that informal refund claims are sufficient to stop the refund claim statute of limitations, and that a perfected refund claim later on (after the statute has run) is normally sufficient.  United States v. Kales, 314 U.S. 186, 194 (1941).

Further, if IRS employees don’t want to enforce this timing requirement in some cases (like Kurko), why state the timing requirement as mandatory at all?  Leaving the submission of the physician’s statement as mandatory at the time of the filing of the return when the IRS has shown that it can overlook that mandatory requirement simply allows for IRS employees to impose the requirement at whim, which is a recipe for abuse of discretion.


Congress passed § 6511(h) to assist a very vulnerable population. Most of the persons impacted by the financial disability provisions face mental and not physical impairments preventing them from easily complying with the procedures for filing returns and refund claims. Rather than creating difficult barriers for this group to navigate, the IRS should adopt procedures that impose barriers to the extension of the statute of limitations only for those who cannot demonstrate financial disability, while allowing the former individuals the full opportunity to demonstrate the bases for their claims.

Does Rev. Proc. 99-21 Validly Restrict Proof of Financial Disability, for Purposes of Extending the Refund Claim SOL, to Letters From Doctors of Medicine or Osteopathy? Part 1

Procedurally Taxing has been following a CDP case that raised important issues about the proper application of the financial disability provisions added to the Code in 1998. Both Carl Smith and I have written on this issue and I have blogged on it. As currently written the concept of financial disability applies in the refund context though the discussion here also relates to the equitable tolling discussions we have frequently had on this site and most recently in a post by Carl.

Carl has produced a two part post on a CDP case that was pending before Judge Gustafson in which the judge entered another interesting order in March. Today’s post will set up the case and describe that recent order. Tomorrow’s post will demonstrate the too limited scope of the current procedures governing the determination of financial disability and offer some unsolicited advice to the IRS on how it might make improvements. Keith

In two prior posts — one in Summ. Ops. by Stephen and one by me — PT has reported on a very interesting Collection Due Process (CDP) case that was recently pending in the Tax Court, Kurko v. Commissioner, Docket No. 24040-13L.  The case had continued to present novel issues — most recently in an order issued by Judge Gustafson on March 20, 2015 – namely, whether an amended return’s overpayment may be credited against a CDP-year liability, even though the overpayment return was filed beyond the 3-year period of § 6511(a). In a recent remanded CDP hearing completed prior to the March 20 order, the taxpayer presented the Settlement Officer with a letter from a licensed psychologist stating that the taxpayer had a mental health disability that made her financially disabled for purposes of § 6511(h)’s provision tolling the credit or refund claim period under (a).  In a supplemental notice of determination, the SO denied tolling on the ground that, under Rev. Proc. 99-21,1999-1 C.B. 960, the letter had to come from a “doctor of medicine or osteopathy legally authorized to practice medicine and surgery” – which is a subset of individuals defined as “physicians” at 42 U.S.C. § 1395x(r) (listing various medical professionals, but not clinical psychologists).  In his order of March 20, Judge Gustafson instructed the parties to brief the issue of the validity of the Rev. Proc.’s limitation requiring the letter to come from a doctor of medicine or osteopathy as defined in § 1395x(r)(1).  Although it initially supported the position taken in the supplemental notice of determination, after reading Judge Gustafson’s questions in his March 20 order, the IRS decided to sign a stipulated decision providing that the overpayment was timely claimed, notwithstanding that the letter was not from a “physician” – thereby settling the case and rendering the issue moot for purposes of the Kurko case. However, as this issue may recur, and the issue is an important one, I think it is worth a couple of posts.

Below, I explore Judge Gustafson’s concerns in detail and conclude that the Rev. Proc. is invalid and the IRS should revise it and replace it, after notice and comment, with a suitable regulation.


First, some good news about Ms. Kurko’s case:  Ms. Kurko was proceeding in the case pro se. An issue in the prior posts on this case was the judge’s request that Ms. Kurko get an attorney or next friend to assist her in prosecuting the case. She did eventually get a pro bono attorney, Bruce McElvenney, located in Norwell, MA. I commend Mr. McElvenny in his representation, which began with the CDP remand hearing earlier this year.

Kurko‘s Facts

Ms. Kurko failed to timely file 2008 and 2009 income tax returns, but she filed a late 2011 return showing a small balance due that she did not pay.  The IRS prepared Substitutes for Return for her for 2008 and 2009 showing substantial balances due (over $10,000 due for 2009) and sent her notices of deficiency.  She received the 2009 notice of deficiency, but did not contest it in Tax Court, so was not in a position to challenge the 2009 underlying liability in a CDP hearing.  §6330(c)(2)(B). She did not receive the 2008 notice of deficiency, so she still could raise a challenge to the 2008 underlying liability in a CDP hearing.  The IRS assessed both the 2008 and 2009 deficiencies.  In February 2013, the IRS sent Ms. Kurko a notice of filing of a tax lien for 2008, 2009, and 2011.  She timely requested a CDP hearing.  In her Form 12153, she challenged the amount of the 2008 liability and wrote: “I am in the process of seeking legal assistance and psychiatric assistance.  I told agents unemployed (sic) and am applying for SSDI [Social Security Disability Insurance benefits].

During the course of the ensuing CDP hearing, in June 2013, Ms. Kurko filed an original 2008 income tax return showing an overpayment of $8,560, which she elected to apply to her 2009 taxes.  The IRS processed the 2008 return (eliminating any balance due for 2008), but did not apply the overpayment shown thereon as a credit to the 2009 liability, since the SO determined that the 3-year credit or refund claim statute of limitations at § 6511(a) for the 2008 year had run out on April 15, 2012 — 14 months before the 2008 return was filed.  As of the time the SO issued the notice of determination (September 2013), Ms. Kurko had not been awarded SSDI benefits.  However, based on evidence provided to an ALJ in the Social Security Administration (1) by a licensed psychologist with a PhD degree in clinical psychology and (2) by Ms. Kurko (apparently through her own testimony), at some point after she filed her Tax Court case, she was granted SSDI benefits.

In December 2014, Judge Gustafson issued a bench opinion finding that Ms. Kurko had discussed her mental health issues with the SO, who should have then invited Ms. Kurko to submit evidence that she had been financially disabled within the meaning of § 6511(h).  Since the SO had not done so, the judge ordered the case remanded for a supplemental CDP hearing.

Section 6511(h) and Rev. Proc. 99-21

Section 6511(h), adopted in 1998, provides that “the running of the periods specified in subsections (a), (b), and (c) [of § 6511] shall be suspended during any period of such individual’s life that such individual is financially disabled”.  The statute partially overruled the Supreme Court’s decision in the Brockcamp case, which held that the 3-year period of limitations in subsection (a) was not subject to the judicial doctrine of equitable tolling on any ground (including the ground of disability involved therein). The new statute defined “financially disabled” as “such individual is unable to manage his financial affairs by reason of a medically determinable physical or mental impairment of the individual which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.” Congress placed two limitations on this provision:  First, “[a]n individual shall not be considered to have such an impairment unless proof of the existence thereof is furnished in such form and manner as the Secretary may require.”  Second, “[a]n individual shall not be treated as financially disabled during any period that such individual’s spouse or any other person is authorized to act on behalf of such individual in financial matters.”

The Treasury has never adopted any regulations under § 6511(h).  However, in 1999, without any prior public notice or comment or explanation of why it made certain choices, it adopted Rev. Proc. 99-21.  Section 4 thereof states:

Unless otherwise provided in IRS forms and instructions, the following statements are to be submitted with a claim for credit or refund of tax to claim financial disability for purposes of § 6511(h).

(1) a written statement by a physician (as defined in § 1861(r)(1) of the Social Security Act, 42 U.S.C. § 1395x(r)(1)), qualified to make the determination, that sets forth:

(a) the name and a description of the taxpayer’s physical or mental impairment;

(b) the physician’s medical opinion that the physical or mental impairment prevented the taxpayer from managing the taxpayer’s financial affairs;

(c) the physician’s medical opinion that the physical or mental impairment was or can be expected to result in death, or that it has lasted (or can be expected to last) for a continuous period of not less than 12 months;

(d) to the best of the physician’s knowledge, the specific time period during which the taxpayer was prevented by such physical or mental impairment from managing the taxpayer’s financial affairs; and

(e) the following certification, signed by the physician:

I hereby certify that, to the best of my knowledge and belief, the above representations are true, correct, and complete.

(2) A written statement by the person signing the claim for credit or refund that no person, including the taxpayer’s spouse, was authorized to act on behalf of the taxpayer in financial matters during the period described in paragraph (1) (d) of this section. Alternatively, if a person was authorized to act on behalf of the taxpayer in financial matters during any part of the period described in paragraph (1) (d), the beginning and ending dates of the period of time the person was so authorized.

Remand Hearing and Subsequent Order

At the remand hearing in February of this year, Ms. Kurko, assisted by her counsel, submitted a letter from the same licensed psychologist whose evidence was accepted for SSDI purposes.  The letter was in the required format of the Rev. Proc. 99-21 letter.  Ms. Kurko also submitted the written statement required by the Rev. Proc. that no one was authorized to act on her behalf on financial matters during the relevant period.

In a supplemental notice of determination, the SO turned down the psychologist’s letter on the ground that the psychologist was not a “physician”, as defined in the Rev. Proc.  Ms. Kurko then filed a report with the court showing the psychologist’s letter and the supplemental notice of determination.  This triggered a fairly annoyed order from the judge on March 20.  In the order, the judge, after noting that the case was set for a second trial at Boston on June 8, stated

that, if the case does not settle, then in the next memoranda or briefs to be filed, the parties shall explain their positions on two issues:

(a)            What level of deference should be accorded to the “physician” requirement of section 4(1) of Rev. Proc. 99-21, 1991-1 C.B. 960? Section 6511(h) provides that the taxpayer must furnish “proof … in such form and manner as the Secretary may require”. Did the Revenue Procedure go beyond mere form and manner to set up a substantive standard? Does that matter? Does it matter whether the Revenue Procedure was promulgated without notice-and-comment pursuant to Section 4 of the Administrative Procedures Act, 5 U.S.C. § 553?

(b)            For purposes of assessing the validity of the “physician” requirement, what was the agency’s rationale for (a) requiring that the statement be by a “physician” as opposed to another sort of medical professional, and (b) importing the definition of “physician” from a Medicare provision (42 U.S.C. § 1395x(r) (“a doctor of medicine … legally authorized to practice medicine and surgery”))? In regards to Medicare (its native context), the definition has the apparent purpose of restricting Medicare payments to certain persons. It is not immediately obvious why, in setting standards for proving a mental disability, an agency would require a statement by someone who is qualified to receive Medicare payments and is “authorized to practice medicine and surgery”.

Deference to Rev. Procs.

Of course, it is well-settled in the Tax Court that a Revenue Procedure that states no reasoning for a requirement gets no deference — not even Skidmore v. Swift & Co., 323 U.S. 134 (1944), deference.  See Exxon Mobil Corp. v. Commissioner, 136 T.C. 99, 117 (2011) (“Because the pronouncement in Rev. Proc. 99-43, supra, that [for interest netting to apply] both periods of limitation must be open is unaccompanied by any supporting rationale, it is not entitled to [even Skidmore] deference and does not provide a basis for resolving the issues before us.”).

“Physician” in 42 U.S.C. § 1395x(r) includes more individuals than the “doctor of medicine or osteopathy” under its paragraph (1) — who are the only kinds of medical professionals eligible to submit the Rev. Proc. written statement.  The term “physician” at subsection (r) also includes (at later paragraphs thereunder) doctors of dental surgery or dental medicine, doctors of podiatric medicine, doctors of optometry, and licensed chiropractors. None of these other health professionals, although “physicians” for Medicare purposes, may submit the Rev. Proc. written statement. However, even if the Rev. Proc. were expanded to allow written statements from all the other people listed under subsection (r), that subsection’s definition of “physician” currently does not include “clinical psychologists”. Medicare does contain definitions of “clinical social worker” and “clinical psychologist” at 42 U.S.C. § 1395x(hh) and (ii), but those professionals are not treated as “physicians” under Medicare.

Regardless of whether the IRS actually could find a reason for cross-referencing a subset of the definition of “physician” in Medicare, that Rev. Proc. limitation should be rejected, since the IRS has apparently failed to consider why it should reject the less strict procedures to prove disability applied in the SSDI context and other contexts.  The SSDI requirements and requirements in other contexts will be discussed in tomorrow’s post, together with suggestions for improving and replacing the current Rev. Proc. governing financial disability. But, the judge’s March 20 order has at least already resulted in the IRS conceding Ms. Kurko’s right to benefit from § 6511(h), notwithstanding her non-compliance with the Rev. Proc. A stipulated decision in the Kurko case was entered on June 18, 2015. Although the Tax Court lacks jurisdiction in CDP cases to find an overpayment, in a stipulation below the judge’s signature in the decision, the IRS and Ms. Kurko agreed that there was an overpayment for 2008 in the amount sought by Ms. Kurko ($8,560) and that the overpayment was not barred by § 6511.


Unpublished CDP Orders Dwarf Post-trial Bench Opinions in Uncounted Tax Court Rulings

In this post, Carl Smith builds on Keith’s prior post discussing Tax Court bench opinions. The fascinating post discusses how non-precedential CDP orders may implicate substantive issues and matters of great practical importance to taxpayers, some of whom are unrepresented and in need of legal assistance.

The Internal Revenue Code directs TAS, in its annual report, to “identify the 10 most litigated issues for each category of taxpayers, including recommendations for mitigating such disputes”. Section 7803(d)(2)(B)(X).  When the statute was enacted in1998, the Tax Court had not yet put its opinions on line.  But, it shortly thereafter put them on line, making T.C., T.C. Memo., and T.C. Summary Opinions searchable.  Previous to adding T.C. Summary Opinions, only the IRS and the Tax Court (and the particular petitioner involved) knew of T.C. Summary Opinions.  Part of why the court made T.C. Summary Opinions searchable — notwithstanding their lack of precedential value — is the court thought it unfair that the IRS, in effect, had a secret, monopoly library of T.C. Summary Opinions to look at, while the taxpayers did not.  The court wanted to level the playing field.  In TAS’ annual reports to Congress since 1998, out of the Tax Court, only T.C., T.C. Memo., and T.C. Summary Opinions have been counted as identifiable litigations.  As we all know, just because something is not precedential, though, doesn’t mean people don’t want to read it for tea leaves when the situation comes up again.  That’s why private letter rulings are also published these days (at least after persistent Tax Analysts lawsuits).  In a recent post, Keith noted that after June 17, 2011, the Tax Court has been posting on line all of its orders and bench opinions and making them searchable.  Keith recently examined the surprisingly large number of bench opinions that the court has been issuing.  He found 222 in a roughly two-year period.  Not only do I now think it appropriate to include non-precedential bench opinions in litigated cases for purposes of TAS’ annual report, but I also think that non-precedential CDP orders on motions for summary judgment or that result in a contested remand should be published. My research indicates that such CDP orders dwarf even the number of T.C. Memo. Opinions issued each year.  Are we really giving Congress the true litigation picture by excluding these bench opinions and CDP orders?


In 2014, there were 24 T.C. opinions issued from January to June and 21 opinions issued from July to December.  There were also 259 numbered T.C. Memo. Opinions, and 115 T.C. Summary Opinions.

According to the 2014 TAS annual report (which covers cases issued in the period from June 1, 2013 to June 1, 2014), out of all courts together, there were only 731 “litigated tax cases” that TAS reviewed. TAS reported that litigation of CDP cases had been falling, with only 105 cases in 2013 and 76 cases in 2014 – leaving CDP no longer the first-most, but now the fifth-most litigated issue in tax cases. NTA 2014 Report, Vol. 1, pp. 423-425.

Now let’s alter TAS’ math: Taking Keith’s bench opinion figure and dividing it by two (his analysis covered 2011 to 2012, though I am not sure it included bench opinions issued before June 17, 2011), one can project that there were likely also about 110 bench opinions issued last year.

I did an order search for orders issued from 1/1/14 to 12/31/14 using the following words: “(summary judgment or remand) and (6330 or 6320).” This search turned up about 300 orders (12 pages of 25 cases per page).

Most of these orders are grants of IRS motions for summary judgment — but with multipage descriptions of (1) the facts, (2) the legal standards for summary judgment (e.g., Florida Peach Corp. v. Commissioner, 90 T.C. 678 (1988)) and CDP review (e.g., Sego v. Commissioner, 114 T.C. 604, 608 (2000)), and (3) application of the law to the stated facts to reach a ruling. These orders are for all intents and purposes like published opinions and could easily have been issued as T.C. Memo. or T.C. Summary Opinions, unless the judges are deliberately evading the Chief Judge’s review function for opinions found at section 7460(b).  That’s an interesting question for Chief Judge Thornton to consider.

In the vast bulk of the orders, the taxpayer is told that he or she can’t challenge the underlying liability (if the taxpayer tried to), and he or she loses on collection alternatives either because the taxpayer (1) is not current on paying and filing, (2) never provided a requested Form 433-A, or (3) never requested a specific collection alternative (i.e., a particular installment agreement or offer in compromise).

Still, in a significant chunk of the rulings, the IRS loses the motion, and, sometimes a remand is ordered.  This usually comes after some highly critical comments from the judge on what seems lacking in the administrative record or in the Settlement Officer’s behavior.  My hunch is that some of these ordered remands result in settlements so the cases never again return to the judges for a regular ruling.  For those of you who are tired of reading CDP T.C. Memo. and T.C. Summary Opinions where the taxpayer loses and so conclude that Tax Court CDP review is a waste of time, I suggest you examine some of these orders where the court directs a remand.

Indeed, within the orders, you will also find additional remand orders requested by IRS attorneys themselves before a court even had to rule.  The IRS attorneys were too embarrassed to let the judge see the record in the current, inadequate or illogical state.

Of the 300 or so CDP rulings I uncovered, no doubt a few score of them would not meet my criteria for counting as litigations. In some cases, my search picked up IRS voluntary remands, where the judge said little but granted the order. That’s not enough of a fight to me to count as litigation. Also, if an order was issued in three consolidated dockets, it shows up three separate times in my search. That’s why some human review of the orders would be needed.

But I just don’t see the wisdom of excluding contested CDP summary judgment and remand orders when, by any count, they both dwarf bench opinions and approximate the total number of T.C. Memo. Opinions issued each year.

The Kurko Rulings

I wanted to give one example of a situation where both a denial of a motion for summary judgment and a later bench opinion ordering a CDP remand were issued and provided some jaw-dropping pro-taxpayer findings and holdings.  It seems somewhat arbitrary not to count each of these orders as litigations for purposes of the TAS report, as they get into quite interesting issues.

In Kurko v. Commissioner, T.C. Docket No. 24040-13L, Judge Gustafson was faced with an IRS motion for summary judgment as to some years and a motion to dismiss as moot as to other years in a CDP case.  In a 9-page single-spaced order issued on Nov. 12, 2014, and which Stephen mentioned in the Summary Ops. blog posting of November 25, 2014, Judge Gustafson rejected the contention that there were no material facts in dispute. The judge thought there was an issue about whether a late-filed original return for 2008 filed in 2013 (during the CDP hearing) and showing a large overpayment could have been used to pay down the CDP assessment for the 2009 year because the late claim might have qualified for the section 6511(h) tolling for a person who was financially disabled. The judge thought that it was possible that Ms. Kurko had made it clear enough at the CDP hearing that the Settlement Officer should have realized that this exception might apply and that the SO should have helped explain to the taxpayer how to get the appropriate doctor letter, if possible, to confirm section 6511(h) tolling under Rev. Proc. 99-21. (Judge Gustafson knew that, by the time of the Tax Court proceeding, Ms. Kurko had, in fact, been awarded SSDI – presumably with the assistance of a doctor’s letter similar to the one needed for Rev. Proc 99-21.)

After the motion was denied, the Kurko case proceeded to trial a few weeks later, and Judge Gustafson held, in a 13-page bench opinion (formally issued on Dec. 30, after being read into the record on Dec. 16), that the SO had abused her discretion by not considering section 6511(h) and by not trying to help the taxpayer get a necessary doctor letter to prove financial disability. The judge ordered a remand. The judge was highly dubious of the SO’s testimony (contradicted by the taxpayer) that the taxpayer had never even mentioned her disability and hospitalization for bi-polar disorder during the CDP hearing.  The judge was in a bit of a pickle, though, since Ms. Kurko lives in the First Circuit, which is one of the Circuits that holds that the Tax Court proceeding is limited to the administrative record.  The Tax Court feels otherwise, and the D.C. Circuit held in Byers v. Commissioner, 740 F.3d 668 (D.C. Cir. 2014), that CDP cases involving only collection issues are properly appealable to it — a Circuit that has not ruled on the CDP record rule issue.  Judge Gustafson did not want either to cite Byers or get into whether he had to apply the record rule.  So, here’s how he finessed the issue of expanding on the administrative record when neither the administrative correspondence not Case Activity Record mentioned section 6511(h) or disability:

The IRS contends that out review is confined to the administrative record. The IRS says that an appeal in this case would lie in the United States Court of Appeals for the First Circuit, and that the First Circuit has adopted the “record rule” and has held that, in such a review, we are confined, with “limited exceptions”, to the administrative record developed in the CDP hearing before IRS Appeals. Murphy v. Commissioner, 469 F.3d 27, 31 (1st Cir. 2006). This position involves two difficulties — first, that it is unclear whether a contention (explained below) that a credit elect overpayment should be applied to the liability is an “issue relating to the unpaid tax” (sec. 6330(c)(2)(A)) that would be subject to the record rule; and second, that it is unclear whether a taxpayer seeking a credit elect is “seeking redetermination of tax liability” for purposes of section 7482(b)(1)(A) or whether instead appeal would be to the D.C. Circuit (sec. 7482(b)(flush language)).

However, we assume for present purposes that the “record rule” does govern this case, but we find applicable one of the exceptions that the First Circuit noted — i.e., that “[a] reviewing court may accept evidence outside the administrative record…where there is a ‘failure to explain administrative action [so] as to frustrate effective judicial review,’ Camp v. Pitts, 411 U.S. 138, 142-43, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973) (per curiam).”

We think that the silence of the notice of determination about IRS Appeals’ resolution of Ms. Kurko’s credit elect claim and the absence from the record of the information she gave about her disability combines to fit this exception. Whether from overwork or inattention, the SO failed to record Ms. Kurko’s insistence that her disability accounted for her late 2008 return, and in its determination IRS Appeals failed to address that contention, which we now explain.

So, at trial, the judge took testimony from the SO and Ms. Kurko on what transpired during the CDP hearing and found that the SO’s testimony was incredible on its face.  Here’s only a bit of the flavor of what the judge wrote of the SO’s testimony:

The settlement officer (“SO”) . . . had been an SO for more than 10 years.  She estimates that she has handled 450 cases per year (i.e., more than 4,500 cases by the current time) and states that she cannot recall the details of the cases.  At trial several of her answers to questions about what was said on a given subject in Ms. Kurko’s case were in the nature of “Nothing that I can recall” or “Nothing that I can remember”, and she appeared to indicate that in fact she had no recall of Ms. Kurko’s hearing. For each case the SO prepares a “Case Activity Record” on which she makes dated entries of her contacts with the taxpayer, but it is clear that she does not attempt thereby to give a transcript of her conversations nor even to note every specific subject that is discussed.  Consequently, some of what we find Ms. Kurko said over the telephone does not appear in the SO’s case activity record or other documents in the IRS’s record for this case.  The SO believes that, in her more than 10 years on this job with more than 4,500 taxpayers, no taxpayer has ever requested in a CDP hearing that he be found “financially disabled” for purposes of the statute of limitations on refund claims (see section 6511(h)).

Relying on Ms. Kurko’s testimony, instead, the judge believed that Ms. Kurko mentioned her bi-polar disorder, her 2009 hospitalization, and her then pursuit of Social Security disability. The judge did not merely state (like some judges) that it is premature to declare the SO to have abused her discretion.  Instead, he issued a bench opinion finding an abuse of discretion and ordering a remand to consider the section 6511(h) issue.  The remand hearing is supposed to be completed by February 17, with a report due to the court by March 16.  To me, the Kurko case deserves not only counting as a litigation by TAS, but a description by TAS as one of the more important CDP litigations of the current year.

Closing Observations

One final sad note about Ms. Kurko.  She is pro se and may be in such a bad condition that she is incapable, without assistance, of getting the appropriate doctor’s letter under section 6511(h).  The judge carefully explained what she needs to do to get the letter during the remand.  In his November order, he begged someone to step forward as her “next friend” or with a Form 2848 power of attorney to represent her at Appeals.  I am retired and not still taking on new cases, but I would urge any attorney in Massachusetts who wants to help this poor woman to step forward and do a real pro bono service for her.

There are some judges on the Tax Court who came from private practice and so will approach private lawyers they knew from pre-judge days and ask them to either step into a Tax Court case or do an appeal pro bono.  To his great credit, Judge Holmes will do this, even when he knows he is asking the attorney to take a position that Judge Holmes opposed in a vehement dissent in a T.C. opinion.  Judge Gustafson comes from government, and whether he doesn’t know enough people in Boston or feels queasy about doing this, he is now watching a slow-motion tragedy unfold before him.  It seems highly likely that a sufficient section 6511(h) letter could be obtained, but the taxpayer is too disabled even to comply with Rev. Proc. 99-21.  This is more reason either to expand section 6511(h) not to be so restrictive or to statutorily overrule United States v. Brockamp, 519 U.S. 347 (1997), which prohibits equitable tolling of the section 6511(a) and (b) periods.

This also raises another issue, which I leave to others to discuss:  Every U.S. district court has pro bono panels of lawyers willing to be assigned (and compensated) for criminal cases.  And every Circuit Court has pro bono panels of experienced appellate lawyers willing to be assigned to both criminal and civil cases — the civil cases for free.  Has the time now come for the Tax Court to set up a pro bono panel of Tax Court practitioners who would be willing, on occasion, to be assigned by a judge to take on a taxpayer’s case — including handling pro bono any necessary appeals?  Please give your views on this in the comments section.  We need to know if there is a ground swell for doing this.