ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – HOW TO EXTEND THE IRS REFUND CLAIM STATUTE OF LIMITATIONS – THE SIM’S CASE – PART 2
By Robert S. Schriebman
This is Part 2 of a two-part series.
If you are late in filing a claim for refund for IRS income taxes, you put yourself in a no-win situation. Not only do you lose your refund permanently, but the IRS keeps your money and does not give you any type of credit for overpaid taxes.
Every taxing agency, whether the IRS, EDD or FTB has a statutory framework for filing refund claims. These statutes are divided into two parts: the time periods for filing a claim for refund, and the time periods for pursuing administrative and judicial redress if your claim is denied. On rare occasions, the basic timeframe for filing a refund claim may be extended, but usually under very narrow circumstances.
The time limits are contained in Internal Revenue Code (IRC) § 6511. First, there is a generally applicable period of limitation on filing a claim. With respect to all taxes where a return is filed, a claim must be filed within three (3) years from the time the return was filed or within two (2) years from the time the tax was paid, whichever period expires later. If no return is filed, the claim must be filed within 2 years from the time the tax was paid.
The Narrow Extension-Exception Set Forth in IRC §6511(h)
Very few people know about this statute. This sub-section allows for the tolling of limitations in instances where the taxpayer is unable to manage his/her financial affairs by reason of a 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. Further, the provision provides that an individual shall not be considered to have an impairment unless proof is provided in the form and manner set forth by the Secretary of the Treasury.
In order to prove that one is impaired, one must comply with Rev. Proc. 99-21. This administrative procedure requires that a written statement by a physician must accompany the late refund claim. There is quite a laundry list that the physician must adhere to including a certification signed by the physician that states, “I hereby certify, to the best of my knowledge and belief, the above representations are true, correct and, complete.” These specific requirements will be set forth below.
The Rev. Proc. also demands that the taxpayer submitting the statement declaring that no person, including the taxpayer’s spouse, was authorized to act on behalf of the impaired taxpayer. This statement also applies to someone who is not a spouse such as a financial advisor, attorney, or an accountant.
The George Sims Case (Sims v. IRS US District Court, SD Ohio, September 27, 2022)
George and his wife Cheryl decided to fight the IRS on their own and did not hire an experienced tax controversy attorney. This may have been a mistake. Admittedly, they were entitled to a refund on their 2014 joint return if that return was filed timely. Instead, their return was filed in May 2019. This was way beyond the 3-year and 2- year rules set forth in IRC § 6511(h).
Cheryl Sims has suffered from pulmonary sarcoidosis causing lung scarring since 2003. She has been declared permanently disabled by the State of Ohio since 2006. George and Cheryl failed to file their 2014-2017 income tax returns until May 2019. They were entitled to a refund only for the year 2014. In 2019, the IRS sent them a letter saying that the 2014 refund was statute barred pursuant to IRC § 6511(h). They appealed this denial and attached to their appeal the following:
- Signed medical records from a doctor dated 2003.
- Fact sheet on pulmonary sarcoidosis
- A disability statement dated 2006.
- Documentation supporting behavioral health records dated between 2007-2009
- Medical records for an emergency room visit in 2016
- Medical records substantiating pulmonary sarcoidosis
George and Cheryl did not attach a written statement listing the requirement pursuant to Rev. Proc. 99-21 and certified by a physician: “I hereby certify, to the best of my knowledge and belief, the above representations are true, correct and, complete.”
They also failed to attach a written statement attesting that George was unable to take care of family financial matters between 2015-2019.
Judge Marbley, the Chief US District Judge issued the opinion. He held that the Sims failure to comply with the strict requirements of Rev Proc. 99-21 prevented them from receiving the late refund. Basically, Judge Marbley told the Sims that his hands were tied because the requirements must be strictly construed. He denied the late refund claim.
What Does Rev. Proc 99-21 Require?
Rev. Proc. 99-21 requires the following:
- A written statement by a physician…that sets forth:
- 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 his/her financial affairs;
- the physician’s opinion that the impairment was or can be expected to result in death, or last for a continuous period of at least 12 months;
- to the best of the physician’s knowledge, the taxpayer was impaired from managing his/her financial affairs;
- the following certification: “I hereby certify, to the best of my knowledge and belief, the above representations are true, correct and, complete.”
- A written statement that no person including the taxpayer’s spouse was authorized to act on behalf of the taxpayer in financial matters during the period set forth in paragraph .(d) above.
In law school we were taught that hard cases produce bad law. The case of Cheryl Sims is a clear example of this maxim. At the very beginning of the decision, the judge stated that she has been deemed permanently disabled by the State of Ohio since 2006. She lost her case primarily because she did not follow Rev. Proc 99-21 and failed to produce the required physician’s letter. It was clear from the evidence that, in spirit, she met the criteria for an extension of time pursuant to IRC §6511(h). I think the judge was overly technical and showed no empathy.
On the other hand, I may be too hard on Judge Marbley. Perhaps if George and Cheryl would have retained an experience tax controversy attorney to represent them, that attorney would have done his/her homework and discovered Rev. Proc. 99-21, complied with its requirements, and the refund would have been granted. Sometimes, DIY is not the best approach to take especially in litigation.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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