Power of attorney revoked due to taxpayer's mental incompetence.

• Author: Mackey, Colleen H.

Under common law, a power of attorney (POA) becomes void if the taxpayer becomes mentally or physically incompetent. A recent case highlights the need for both practitioners and the Service to be cognizant of this rule. Under normal circumstances, a representative with authority under a POA has the authority to sign a consent to a waiver of the statute of limitations (SOL) on assessment; however, the POA is revoked on the subsequent incapacity of either the principal or the agent. In Halper, TC Memo 1997-58, the taxpayer's mental and physical incompetence revoked the POA, which caused the SOL to expire before a deficiency notice was mailed.

In 1988, Halper signed a POA naming a representative. In April 1991, he suffered a massive stroke, leaving him both physically and mentally incapacitated. After the stroke, the representative continued to act on Halper's behalf in IRS matters under the apparent authority of the POA executed before the stroke. On Sept. 23, 1991, the representative alone signed Form 872, Consent to Extend the Time to Assess Tax, which purported to extend the SOL for 1985 and 1986 until Dec. 31, 1992. Along with Form 872, the representative attached a letter that stated: "I am returning herewith the two copies of form 872, signed by me alone as Mr. Halper's representative. As I advised you, Mr. Halper suffered a stroke and as a result cannot speak and is paralyzed in half of his body." As a result of Halper's condition, court-appointed guardians were named subsequent to the representative's signing Form 872.

In a second letter addressed to the IRS agent on May 20,1992, the representative wrote: "Because Mr. Halper is presently not competent to authorize my agreement to the figures which you state represent sums owed to the IRS, I cannot sign Form 870 [Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment] which you have enclosed. As you may know, while he was competent, Mr. Halper believed that the assessed amounts were not accurate to the extent stated."

Although he did not sign Form 870, the representative signed an additional Form 872 on Aug. 27, 1992, purporting to extend the SOL for 1985 and 1986 to Dec. 31, 1993. Subsequently, a new POA was executed by one of Halper's court-appointed guardians, naming new representatives (excluding the prior...