Refund claims: getting money back.

• Author: Singer, Robert M.
• Position: Tax refunds

Before 1998, a disabled taxpayer had a limited time (usually three years after filing a return) to demand a refund from the IRS. Many taxpayers attempted to circumvent this time limit by arguing that the statute of limitations (SOL) was tolled while they were disabled.

Before 1995, the Ninth Circuit interpreted the Code to allow toiling. However, in 1995, the Supreme Court held that "Congress did not intend the ... equitable doctrine [of tolling] to apply" in tax refund claims under Sec. 6511 (Brockamp, 117 S. Ct. 849 (1997), rev'g 67 F3d 260 (9th Cir. 1995) and 70 F3d 120 (9th Cir. 1995)).

New Law

With the massive legislative changes in the Internal Revenue Service Restructuring and Reform Act of 1998 (IRSRKA `98), Sec. 6511 was amended to legislatively overturn Brockamp.

Specifically, new Sec. 6511(h)(1) permits equitable tolling when a person is "financially disabled" and the claimant provides proof (as required by the Service) (Sec. 6511(h)(2)(a)). The IRSRRA `98 Conference Report states that the IRS will evaluate whether a medical opinion has been offered by a person qualified to do so with respect to the "particular" impairment.

Financial Disability

Financial disability is a two-part test based on the type and extent of disability and the duration of disability

Type and extent of disability. The condition must cause an inability to manage one's financial affairs due to a medically determinable physical impairment or mental impairment.

The IRSRRA '98 Committee Report discusses medically deterruinable "physical impairment" as a threshold requirement for tolling, but does not include a definition. If one is sufficiently impaired to be unable to file for a refund, the implication is that "physical impairment" is the same as "total disability." It is hard to imagine someone being unable to file a refund claim if he is mobile. For example, physical impairment can occur in a case of hospitalization following a major auto accident or workplace injury.

"Mental impairment" is likewise not defined. However, because of the difficulty in determining if a mental impairment exists, the broadest proof possible should be given to the Service.

Under a strict view, only a mental health professional can do an evaluation for mental impairment. The strictest view would require an evaluation by a medical doctor, particularly a psychiatrist, who is trained to evaluate a "particular" impairment, such as bipolar (manic depressive) disorder or clinical...