Failure to Bring Doctor's Note Precludes Finding of Financial Disability; Statute of Limitations
Not Suspended (Parker's Federal Tax Bulletin: September 13, 2012)

Generally, the statute of limitations that applies to a taxpayer's refund or credit claim depends on whether or not the taxpayer filed a return. If the taxpayer filed a return, the claim for refund or credit must be filed within three years of the date the return was filed or within two years of the date the tax was paid, whichever is later. If the taxpayer was not required to file a return, the claim for credit or refund must be filed within two years of the date the tax was paid. However, there is a special exception, under Code Sec. 6511(h), which allows for the suspension of the statute of limitations during any period of an individual's life where the individual is financially disabled.

In Abston v. Comm'r, 2012 PTC 250 (8th Cir. 8/31/12), the taxpayer argued that she was financially disabled and thus the statute for requesting a refund should have been suspended. While she had submitted documentation that she believed proved she was financially disabled, the Eighth Circuit upheld a lower court ruling that her failure to submit a physician's statement, as required by Rev. Proc. 99-21, was fatal to her claim. In so ruling, the Eighth Circuit became the first appellate court to address this issue.

OBSERVATION: Prior to the Eighth Circuit's decision, several district courts had dismissed taxpayer refund suits because the taxpayer's claim of financial disability was not supported by a physician's statement as required by Rev. Proc. 99-21.

Background

On April 15, 2003, the due date for her 2002 federal income tax return, Rani Abston knew the IRS would apply any refund to repay her defaulted student loans. Consequently, she did not file a return and claim a $2,859 refund until February 2007, after she resolved her student loan obligations. In June 2008, the IRS denied the claim because it was not timely filed. The June 2008 denial letter advised Rani that she could appeal the decision and that exceptions extending the time to file refund claims included financial disability. The letter recited the statutory definition of financial disability, and urged Rani to review IRS Pub. 556, Examination of Returns, Appeal Rights, and Claims for Refund, for additional details regarding the exceptions.

Rani subsequently met with an IRS Appeals Officer but came with nothing, and her claim was denied. She was advised of her option to seek judicial review of the denial. Rani filed suit in a district court and submitted an affidavit and 137 pages of medical records that chronicled her medical conditions. The district court granted the IRS summary judgment, concluding that Rani did not offer the necessary evidence to permit consideration of whether the limitations period was suspended by Code Sec. 6511(h).

Rani appealed to the Eighth Circuit, arguing that the district court erred in ruling that her failure to submit a physician's statement, as required by Rev. Proc. 99-21, was fatal to her claim of financial disability. According to Rani, the failure to comply with Rev. Proc. 99-21 should not be dispositive, and the district court should have made an independent determination that she was financially disabled for purposes of Code Sec. 6511(h).

Eighth Circuit's Analysis

The Eighth Circuit agreed with the lower court and held that Rani's refund claim was untimely under the three-year look back limitation in Code Sec. 6511(b)(2)(A). The Eighth Circuit began by noting that, in U.S. v. Brockamp, 519 U.S. 347 (1997), a unanimous Supreme Court held that courts may not use nonstatutory equitable reasons to prevent the statute of limitations, as set forth in Code Sec. 6511, from applying. Code Sec. 6511(h), the court observed, allows the limitations period to be suspended where the taxpayer is financially disabled. Code Sec. 6511(h) defines financial disability and specifies the manner in which a taxpayer may establish that he or she qualifies for the exception, including furnishing proof of the existence of such disability in a manner required by the IRS. In Rev. Proc. 99-21, the IRS requires the taxpayer to prove a medically determinable physical or mental impairment. Part of that proof, the court noted, is a doctor's note, the contents of which are specified in Rev. Proc. 99-21.

The court cited several reasons for rejecting Rani's argument that the failure to comply with Rev. Proc. 99-21 should not be dispositive and that the district court should have considered her medical records. First, the contention was contrary to the plain meaning of the statute, the court said. Federal courts have no jurisdiction over a tax refund suit until a claim for refund or credit has been duly filed with the IRS, according to the provisions of law. And Code Sec. 6511(h)(2)(A) expressly provides that a taxpayer is not considered financially disabled unless proof of a disabling impairment is furnished in such form and manner as the IRS may require. The court concluded that Rani's refund claim was not duly filed, and the district court did not have the power to decide that she was financially disabled in the absence of a duly filed claim. Second, the independent judicial determination of financial disability Rani was seeking, the court said, was the kind of nonstatutory tolling the Supreme Court specifically barred its Brockamp decision.

Finally, although Rani complained that Rev. Proc. 99-21 was adopted without the benefit of notice-and-comment rulemaking, the Eighth Circuit noted that she cited no authority suggesting that the IRS was not authorized to address this issue in a revenue procedure. In Code Sec. 6511(h)(2)(A), the court observed, Congress did not direct the IRS to issue requirements by regulation, as it has elsewhere in the Code. Knowing that the IRS would need to fairly and efficiently process a potentially large number of financial disability claims, Congress instructed the IRS to prescribe the method by which an individual could prove such impairment. In Rev. Proc. 99-21, the court stated, the IRS logically prescribed, Bring a doctor's note.

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