'Financial Disability' and Suspending the Statute of Limitations

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By Kathleen Ford Bay  

Richards Rodriguez & Skeith LLP, Austin, TX

In Redondo v. United States, No. 2013-5058 2013 BL
243933 (Fed. Cir. 9/13/13) (denominated as a nonprecedential case),
the Federal Circuit addresses the discretionary authority of the
government to toll a statute of limitations in refund claim cases.
The Federal Circuit confirms the dismissal by the Court of Federal
Claims for lack of subject matter jurisdiction.

A taxpayer must, within three years of a timely filing, make a
claim for credit or refund of an overpayment, if required to file a
return. (If later, the taxpayer may make a claim within two years
of payment of the tax.) The IRS has the authority and discretion to
recognize a tolling of the statute of limitations if the taxpayer's
failure to act is due to a "financial disability" resulting from a
physical or mental impairment that "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."
§6511(h)(2)(A).  However, the taxpayer also is not considered
to have a financial disability if there is a spouse or agent who
could have acted on behalf of the taxpayer.

The burden of proving the financial disability is upon the
taxpayer. Rev. Proc. 99-21, 1999-1 C.B. 960 specifies that, to
establish "financial disability," a taxpayer must submit a written
statement by a physician that includes:

  •  the name and a description of the taxpayer's physical or
    mental impairment;
  •  the physician's medical opinion that the physical or
    mental impairment prevented the taxpayer from managing the
    taxpayer's financial affairs;
  •  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;
  •  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
  •  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."

Congress enacted §6511(h) after the U.S. Supreme Court
overturned the Ninth Circuit's decision that there implied in §6511
was "equitable tolling," holding, in United States v.
, 519 U.S. 347 (1997), that the government had no such
authority. Abston v. Commr, 691 F.3d 992 (8th Cir. 2012),
appears to be the first appellate decision addressing §6511(h) and
Rev. Proc. 99-21. There the district court held, and the circuit
court affirmed, that the failure to submit the physician's
statement was fatal to the claim for tolling of the statute of
limitations. In an earlier case, a magistrate with the Federal
District Court of the Eastern District of California had actually
given the taxpayer, after a hearing, 28 days to file a supplemental
physician's statement. When the taxpayer failed to do so, the
magistrate recommended that the government's motion to dismiss the
taxpayer's complaint be dismissed. Bowman v. Internal Revenue
,  these findings and recommendations were
adopted, the case was dismissed and closed. In Redondo,
the taxpayer also had additional time from the government to
provide a satisfactory physician's statement and did not do so.

For more information, in the Tax Management Portfolios, see
Peyser, 631 T.M.
, Refund Litigation, Peyser, 627
, Limitations Periods, Interest on Underpayments and
Overpayments, and Mitigation, and Rule, 623 T.M., IRS
Procedures: Examinations and Appeals, and in Tax Practice
Series, see ¶3860, Statute of Limitations, and ¶3890, Claim for