In Stauffer v. IRS, No. 18-2105 (1st Cir. 2019), the U.S. Court of Appeals for the First Circuit affirmed the district court in ruling that the statute of limitations (SOL) period for requesting a refund from the Internal Revenue Service hadn’t been tolled due to a father’s disability. The SOL failed to toll because a son held a valid durable power of attorney to act on behalf of the father.
POA Executed
In October 2005, Hoff Stauffer and his father, Carlton Stauffer, executed a durable POA that granted Hoff broad powers over Carlton’s finances, including the authority to prepare, execute and file Carlton’s tax returns. In March 2006, Hoff and Carlton’s relationship began to deteriorate. Around this time, Carlton drafted three notices revoking the POA granted to Hoff, but Hoff never received these or any other notice that his power was terminated.
Claim for Tax Refund
Carlton and Hoff reconciled their relationship approximately four years later, as evidenced by transactions between the two in 2009, and in 2012, Carlton passed away. Hoff was named personal representative of the estate. As representative, Hoff filed tax returns for Carlton for years 2006 through 2012, and in 2013, Hoff claimed a refund of $97,364 for an overpayment on the 2006 return. The IRS denied the claim as untimely pursuant to Internal Revenue Code Section 6511(a), which sets a 3-year limitations period for filing for such a refund.
District Court Finds No Tolling of Limitations Period
Hoff, as representative of Carlton’s estate, alleged that its refund claim relating to the 2006 return (filed in 2013) was timely because Carlton’s financial disability tolled the 3-year period to file the claim under IRC Section 6511(h)(1). The district court dismissed the estate’s complain pursuant to Section 6511(h)(2)(b), finding that Hoff, as of the execution of the POA in 2005, was authorized to act on behalf of Carlton. Section 6511(h)(2)(b), which provides an exception to Section 6511(h)(1)’s tolling provision, states: “An individual shall not be treated as financially disabled during any period that . . . [any] person is authorized to act on behalf of such individual in financial matters” (emphasis added). Further, the court found that the POA was never renounced by Hoff nor revoked by Carlton. As a result, the court held that the filing period for a refund expired in October 2010.
Meaning of “Authority”
On review, the First Circuit looked to the meaning of “authorized to act on behalf of” under Section 6511(h)(2)(b). The estate argued that the proper interpretation of “authorized to act on behalf of” was limited, under the facts of this case, to Hoff having an affirmative duty to file Carlton’s tax returns and having constructive knowledge of the necessity of filing the tax returns. The court rejected this argument, finding that the plain meaning of “authority” encompasses a mere “right” or “permission” to act and doesn’t require an extension of an affirmative duty to act because of one’s knowledge.
Renouncement of POA
The court then looked to whether Hoff had renounced the POA. Under Pennsylvania law, an agent’s renunciation of the duties and obligations of such relationship must be positive, unequivocal and made known to the principal for it to be effective. Hoff testified that he had told Carlton that “he would no longer be exercising any rights granted to him under the [power of attorney]”, but the court held that this didn’t rise to an unequivocal renunciation. Therefore, the POA hadn’t been effectively renounced.