Injured Vet Was Not Financially Disabled; Statute Had Run on Collecting Tax Refund

(Parker Tax Publishing August 2016)

The Tax Court held that a career army soldier, who was injured in Iraq, was not financially disabled and thus the statute of limitations had run on his ability to collect a refund from his 2009 tax return. The court said that the fact that the soldier's doctor did not offer an opinion that the soldier's condition prevented him from managing his personal financial affairs and the fact that the soldier was capable of managing two rental properties, as well as other financial transactions, were factors in its decision. Peck v. Comm'r, T.C. Summary 2016-45.

Background

Kevin Peck made a career of the U.S. Army. Between 1995 and 2002, he was stationed in the U.S. and, in 2003, he was stationed in Iraq. In 2004, he came back to the U.S. and, in 2007, Peck returned to Iraq for 10 months. After that tour of duty, Peck made a brief stop at Fort Belvoir, Virginia, followed by a deployment to Seoul, South Korea, from 2008 to 2011.

In order to pay his rent while stationed in South Korea, Peck had to first made a cash withdrawal at the bank (in U.S. dollars), convert the dollars to local currency, and then deliver the cash to his landlord. Peck also owned rental homes in Tennessee and Texas. He hired a management company to take care of the Tennessee property and, with the help of neighbors, he managed the San Antonio property.

In the late 1990s, Peck was injured at the Joint Rangers Training School at Fort Campbell in the U.S. He also suffered significant injuries while he was deployed in Iraq.

Because of his frequent overseas deployments, Peck did not always receive his mail timely, and he was delinquent in filing his federal income tax returns. In late 2009, he hired a Las Vegas CPA, Letha Rupert, to prepare his tax returns for 2007 through 2010. Although Peck provided Rupert with the relevant documents to prepare and file his tax returns, he lost contact with her in 2011 and did not reconnect with her until 2013. The court record reflected that Rupert had been seriously injured in 2011 as the result of an assault. In 2013, the IRS prepared a substitute for return in accordance with the provisions of Code Sec. 6020(b) for Peck for 2009. The IRS determined a tax deficiency for 2009 of over $15,500. In December 2013, with Rupert's assistance, Peck filed a Tax Court petition challenging the notice. Rupert passed away suddenly in May 2014. In June 2014, Peck filed a Form 1040 for 2009, claiming that he was due a tax refund of $6,438.

Analysis

Although the IRS agreed that Peck overpaid his federal income tax for 2009, Peck and the IRS disagreed on whether the Tax Court had jurisdiction to award Peck a refund. The primary issue was whether Peck was "financially disabled" within the meaning of Code Sec. 6511(h) so that the running of the statute of limitations governing Peck's refund claim was suspended and was not a bar to the Tax Court's jurisdiction. Under Code Sec. 6511(h), the statute of limitations is suspended while a taxpayer is unable to manage his or her financial affairs due to the taxpayer being financially disabled. Under Code Sec. 6511(h)(2), an individual is considered financially disabled if the individual is unable to manage his financial affairs by reason of a medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of 12 months.

The Tax Court held that, with respect to Peck's 2009 tax return, Peck was not financially disabled and thus the statute of limitations had run on his ability to collect his 2009 tax refund. The court noted that while the record included a written statement from Peck's treating physician which described in general terms Peck's service-related injuries, the letter did not speak to Peck's ability to manage his personal financial affairs. The court said that, while it was sympathetic to Peck's situation and the record reflected that he took reasonable steps to prepare and file his 2009 tax return in time to claim a refund, circumstances (including his deployment to South Korea and Rupert's difficulties) conspired against him. Unfortunately, the court said, it could not conclude that Peck qualified for the specific relief prescribed in Code Sec. 6511(h).

Among the factors the court noted in reaching its decision were the following: (1) Peck was capable of managing one of his rental properties and overseeing the management of another; (2) Peck was able to pay his bills and manage financial transactions such as paying his rent while he was stationed in South Korea; and (3) Peck's treating physician did not offer an opinion that Peck's condition prevented him from managing his personal financial affairs.

For a discussion of the exception to the statute of limitations for persons who are financially disabled, see Parker Tax ¶261,180.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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