We have reported before, here and here, about the case of Hoff Stauffer, Administrator of the Estate of Carlton Stauffer v. IRS, in which the taxpayer, the estate of Carl Stauffer, seeks to obtain a refund for the amount of tax overpaid by a 90 year old individual who failed to timely request the refund in the declining years of his life. Mr. Stauffer was under the long term care of a psychologist who wrote an expert opinion on why Mr. Stauffer’s condition caused him to meet the criteria for financial disability, but the IRS refused to consider this opinion since psychologists are not listed as the type of medical professionals who can offer an opinion for purposes of the statute according to the Revenue Procedure.
The IRS moved to dismiss the case for lack of subject matter jurisdiction because the estate made its request for refund based on IRC 6511(h) but did not use the type of medical professional to support its request required by Rev. Proc. 99-21. In the opinion of both the magistrate judge and the district judge in Boston, the use of the precise medical professional required by the Revenue Procedure was not necessary and the court denied the IRS motion to dismiss.
Tom Crice, who represents the estate, has now filed a motion seeking to enjoin the IRS from arguing in any case that a taxpayer seeking a refund under 6511(h) must use the type of medical professional prescribed by the Revenue Procedure. This will be an interesting case to watch. I also note that separate from what is happening in this case, the government has published a request for comments on Rev. Proc. 99-21. If you have any experience with this provision and thoughts on how the IRS might improve the process, consider sending in a comment to assist the IRS in thinking about how to administer this provision. This is the first opportunity of which I am aware to formally comment on this procedure, which went into effect almost 20 years ago with no public comments.
Just because it lost the motion to dismiss did not mean that the IRS needed to or would concede that the estate was entitled to the refund and the case has continued. In denying its motion to dismiss, the district court wrote that the basis in the Revenue Procedure for the use of only the type of medical professional designated by the IRS seemed arbitrary. Specifically, the court stated:
“Because the government has offered no evidence that the IRS had a reason that was not arbitrary for excluding psychologists from the category of professionals qualified to support a claimant’s financial disability, the court is denying the motion to dismiss.”
The court granted Defendant leave to present at summary judgment any evidence it might have “that the IRS considered reasonably obvious alternatives in excluding psychologists from the definition of “physicians” in the Revenue Procedure. On October 27, 2017, Defendant submitted to the Court its statement that “the United States reports that it does not presently have evidence on what alternatives that the IRS considered in excluding psychologist from the definition of “physicians” in Revenue Procedure 99-21 other than the rule itself.”
The IRS has stopped arguing that the opinion of the psychologists cannot be considered and will now argue that the opinion is not supported. The estate here is fortunate that Mr. Stauffer was seeing a professional for many years before his death and that this professional was in the position to write an expert opinion from personal knowledge and observation of his patient. So many individuals suffering from the type of cognitive decline that could form the basis for 6511(h) relief are not seeing professionals who can write an opinion based on personal observation. The lack of personal observation makes medical professionals, no matter what their professional designation, uncomfortable opining on the scope of a taxpayer’s cognitive decline in a manner that suits the criteria of the revenue ruling. Now that the IRS no longer contests the validity of the opinion of the psychologists, the ability of the taxpayer to succeed in this case has increased significantly. The IRS will have the same difficulty many taxpayers face in finding an expert. Its case will be primarily one of trying to punch holes in taxpayer’s expert rather than having a report of its own.
While I am rooting for Tom in his effort to enjoin the IRS from insisting on a specific type of medical professional as a basis for securing subject matter jurisdiction, I am most interested in seeing the IRS produce a rule that will work for it and for taxpayers in the situation of Mr. Stauffer, Mr. McGill (the decedent involved in Brockamp) and Ms. Parsons (the decedent involved in Webb). The IRS fears a flood of long overdue refund claims and taxpayers fear an inability to provide expert proof of the basis for the late claim.
In my clinic, the students regularly marvel at our clients who fail to file their returns and often leave money on the table as a result. A tiny fraction of these clients may meet the concerns Congress sought to address in passing 6511(h) but most are just professional or semi-professional procrastinators. On the other hand, taxpayers like Mr. Stauffer and Mr. McGill who have a lifetime of timely filing should receive some recognition of that in the process similar to the reasoning behind first time abatement of penalties but with more stringent proof of the longstanding nature of compliance.
The combination of long-standing compliance coupled with cognitive decline because of age or because of other factors like disease or physical injury should produce the type of situation that allows for a refund of money that everyone agrees belongs to the taxpayer but for the delay in requesting it. I also do not mean to suggest that only people with perfect filing histories prior to the onset of financial disability should have the time for filing a refund claim tolled, but rather that a stellar filing history provides its own proof of the aberration of the late filed claim and likely reason therefore.
The rule should build upon the same principles as equitable tolling. It should not open the floodgates for late refunds, but it should not be so narrow that it causes the IRS to seek to knock out taxpayers who do not use the right kind of medical professional or submit the perfect proof package in the first instance. The people who suffer from financial disability will struggle to put together the perfect package for the IRS. Even with professional assistance, the ability to gather the right kind of information can be quite difficult and some patience on the part of the IRS and the court is necessary because of the difficulties of the person seeking the relief.
In her 2013 Annual Report, the National Taxpayer Advocate made a legislative recommendation concerning section 6511(h) and suggesting that Congress broaden the language. The legislative recommendation contains an excellent and detailed discussion of the issue. In particular, one of the concerns she addressed in the report is whether the language of the statute using the words “medically determinable physical or mental impairment” limits the relief to taxpayers who have obtained an opinion from a medical doctor as opposed to another type of medical professional. I know that the IRS is concerned about that as it looks at revising Rev. Proc. 99-21. The Harvard clinic plans to put its thoughts together on this subject in the form of a comment to assist the IRS in reconsidering it guidance and litigation strategy. Please join us in commenting if you have thoughts on this subject.