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Stauffer v. Internal Revenue Service

United States District Court, D. Massachusetts

September 29, 2017



          WOLF, D.J.


         On April 26, 2013, Hoff Stauffer, as administrator of the estate of his late father, Carlton Stauffer, (the "Estate") sought a refund for overpaid taxes for the year ending on December 31, 2006. The claim was submitted past the October 15, 2010 deadline applicable under 26 U.S.C. §6511. The Estate, however, submitted a statement by Stauffer's treating psychologist alleging that Stauffer had suffered from a "financial disability" that justified suspension of the limitations period under 26 U.S.C. §6511(h)(2). The IRS nevertheless denied the claim as untimely because the psychologist's letter did not satisfy the requirement of Revenue Procedure 99-21 that a person claiming financial disability submit a statement from a "physician, " which is defined as a "doctor of medicine or osteopathy" and excludes psychologists.

         The Estate sued. The IRS moved to dismiss, arguing that this court lacks jurisdiction because the Estate did not properly file its refund claim during the limitations period. On February 24, 2017, the Magistrate Judge issued a report recommending that the motion be denied because the IRS did not justify its decision not to consider the statement from Stauffer's psychologist as proof of his disability. For the reasons explained below, the court is adopting in part and modifying in part the Report and Recommendation, and the motion to dismiss is being denied.


         A. Review of a Magistrate's Disposition

         Rule 72(b)(3) of the Federal Rules of Civil Procedure requires the court to review "de novo any part of the magistrate judge's disposition that has been properly objected to." "Conclusory objections that do not direct the reviewing court to the issues in controversy" are not proper under Rule 72(b). Velez-Padro v. Thermo King De Puerto Rico, Inc., 465 F.3d 31, 32 (1st Cir. 2006). Moreover, "[a party is] not entitled to a de novo review of an argument never raised" before the magistrate judge. Borden v. Sec'y of Health & Human Servs., 836 F.2d 4, 6 (1st Cir. 1987). "Parties must take before the magistrate, 'not only their best shot but all of their shots.'" Id. (quoting Singh v. Superintending Sch. Comm. of City of Portland, 593 F.Supp. 1315, 1318 (D. Me. 1984).

         Waiver of de novo review by failing to file proper objections does not entitle a party to "some lesser standard" of review. Thomas v. Arn, 474 U.S. 140, 149-50 (1985); see also Costa v. Hall, 2010 WL 5018159, at *17 (D. Mass. Dec.2, 2010) ("Absent objections, the court may adopt the report and recommendation of the magistrate judge."). However, review by the court in such circumstances is not prohibited, and some level of oversight, even if not de novo, is encouraged. See Henderson v. Carlson, 812 F.2d 874, 878 (3rd Cir. 1987).

         B. Motion to Dismiss for Lack of Jurisdiction

         "There are two types of challenges to a court's subject matter jurisdiction: facial challenges and factual challenges." Torres-Negron v. J & N Records, LLC, 504 F.3d 151, 162 (1st Cir. 2007). "Facial attacks on a complaint 'require the court merely to look and see if the plaintiff has sufficiently alleged a basis of subject matter jurisdiction, and the allegations in [plaintiff's] complaint are taken as true for purposes of the motion." Id. However, when as in the case, the jurisdictional issue depends on questions of fact, the court conducts one of two inquiries. "[W]here...the jurisdictional issue and substantive claims are so intertwined the resolution of the jurisdictional question is dependent on factual issues going to the merits, the district court should employ the standard applicable to a motion for summary judgment." Id. at 163. In contrast, when as in this case, "the facts relevant to the jurisdictional inquiry are not intertwined with the merits of the plaintiff's claim...the trial court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case." Id.

         C. Sovereign Immunity

         "Under settled principles of sovereign immunity, the United States, as sovereign, is immune from suit, save as it consents to be sued...and the terms of its consent to be sued in any court define that court's jurisdiction to entertain the suit." United States v. Palm, 494 U.S. 596, 608 (1990). 28 U.S.C. §1346(a) authorizes individuals to sue for a refund of taxes "erroneously or illegally assessed or collected...under the internal revenue laws." However, the Internal Revenue Code establishes the terms of the consent given in §134 6. Before suing, "the taxpayer must comply with the tax refund scheme established in the Code, " which provides that "a claim for a refund must be filed with the Internal Revenue Service (IRS) before suit can be brought, and establishes strict timeframes for filing such a claim." United States v. Clintwood Elkhorn Min. Co., 553 U.S. 1, 4 (2008).

         In particular, 26 U.S.C. §7422(a) specifies that:

No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected...until a claim for refund or credit has been duly filed with the [IRS], according to the provisions of law in that regard, and the regulations of the Secretary [of the Treasury] established in pursuance thereof.

         In C.I.R. v. Lundy, the court explained the time limits for filing a claim for a refund with the IRS:

[26 U.S.C. §6511] contains two separate provisions for determining the timeliness of a refund claim. It first establishes a filing deadline: The taxpayer must file a claim for a refund "within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid." §6511(b) (1) (incorporating by reference §6511(a)).

516 U.S. 235, 239-40 (1996). As explained below, the Estate filed its tax return for the year 2006 and its claim for a refund on April 26, 2013. Therefore, the refund claim was timely under section 6511(b)(1).

         However, the statute also establishes a "look-back" period. If the taxpayer files the refund claim within 3 years from the time the return was filed, the taxpayer is entitled to a refund only of the taxes he paid within the three years (plus the period of any extension for filing the return) before he filed the claim. See §6511(b) (2) (A) .

         "Although [courts] should not construe such [] time-bar provision[s] unduly restrictively, [they] must be careful not to interpret [them] in a manner that would extend the waiver [of sovereign immunity] beyond that which Congress intended." Palm, 494 U.S. at 608. Therefore, the Supreme Court has held that "unless a claim for refund of a tax has been filed within the time limits imposed by §6511(a), a suit for refund...may not be maintained in any court." Clintwood Elkhorn, 553 U.S. at 5. Accordingly, courts may not "toll, for non-statutory equitable reasons, the statutory time...limitations for filing tax refund claims set for in [§6511]." United States v. Brockamp, 519 U.S. 347, 348 (1997). Therefore, absent some form of tolling, a claimant cannot, by filing a claim in 2013, obtain a refund for taxes paid in 2006.

         26 U.S.C. §6511(h) provides for statutory tolling of the 3-year limitations period in limited circumstances. In particular, the time limit for submitting a claim to the IRS "shall be suspended during any period of [an individual taxpayer's] life that such individual is financially disabled." 26 U.S.C. §6511(h)(1). An individual is "financially disabled" if he is "unable to manage his financial affairs by reason of a medically determinable physical or mental impairment of the individual 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." 26 U.S.C. §6511(h)(2)(A). However, "an individual shall not be considered to have such an impairment unless proof of the existence thereof is furnished in such form and manner as the Secretary may require." Id.

         Revenue Procedure 99-21 "sets forth in detail the 'form and manner in which proof of financial disability must be provided." Bova v. United States, 80 Fed. CI. 449, 455 (2008). It requires an individual claiming financial disability to submit "a written statement by a physician (as defined in §1861(r)(1) of the Social Security Act, 42 U.S.C. §1395x(r)), qualified to make the determination" that the individual satisfied the definition of "financially disabled" in 26 U.S.C. §6511(h). Rev. Proc. 22-91, §4 (emphasis added). Revenue Procedure 99-21 does not itself define "physician" for the purposes of its requirements. Instead, it refers to the definition as established in §1861(r)(1) the Social Security Act, 42 U.S.C. §1395x(r).

         42 U.S.C. §1395x(r) defines the term "physician" as including five enumerated categories of professionals. The first enumerated category, which corresponds to §1861(r)(1) of the Social Security Act, is "a doctor of medicine or osteopathy legally authorized to practice medicine and surgery by the State in which he performs such function or action (including ["osteopathic practitioners...within the scope of their practice as defined by state law, " 42 U.S.C. §1301(a) (7)])." The parties agree that this definition excludes psychologists.

         Therefore, Revenue Procedure 99-21, incorporating 42 U.S.C. §1395x(r), provides that a taxpayer seeking tolling of the 3-year statute of limitations for filing a refund claim based on a "financial disability" must submit a letter from a qualified "doctor of medicine or osteopathy legally authorized to practice medicine and surgery, " to prove the taxpayer's disability.


         The court adopts the facts as recited in the Magistrate Judge's Report and Recommendation and supplemented by the record, which are undisputed. See R&R at 2-7.

         On October 29, 2012, Carlton Stauffer died at the age of 90. His son, Hoff Stauffer, became the administrator of his estate. While closing the Estate, Hoff Stauffer discovered that his father had not filed tax returns for the tax years 2006 through 2012. Accordingly, on April 26, 2013, Hoff Stauffer filed those returns with the IRS. Stauffer claimed that his father overpaid taxes for the 2006 tax year in the amount of $137, 403. He requested a refund for the Estate in that amount.

         On February 18, 2014, the IRS denied the claim for a refund as untimely pursuant to 26 U.S.C. §6511. Stauffer filed an internal appeal. In it, he alleged that the IRS was required to toll the statute of limitations, under 26 U.S.C. §6511(h), because his father had been "financially disabled" during the relevant period. In particular, Stauffer submitted an April 9, 2014 certified statement from Carlton's psychologist, Dr. Stanley Schneider, Ed.D., who had treated him from 2001 until his death in 2012. Dr. Schneider wrote that Carlton Stauffer suffered from "psychological problems, " in addition to "a variety of chronic ailments, including congestive heart failure, chronic obstructive pulmonary disease, leukemia, and chronic pneumonia." Objection, Ex. 2. These conditions, he opined, "severely and negatively impacted" Carlton Stauffer's "mental capacity, cognitive functioning, decision making, and emotional well-being, " and prevented him from managing his financial affairs from at least 2006 until his death. Id.

         Nevertheless, on December 2, 2014, the IRS preliminary denied the Estate's appeal and rejected its claim. The IRS did not determine whether Carlton Stauffer was "financially disabled" during the relevant period. Instead, the agency stated that because Dr. Schneider was not a "physician" as defined in Revenue Procedure 99-21, his letter "cannot be used as a statement that can certify Mr. Stauffer's condition." Compl. at ...

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