Financial Disability

A taxpayer who is owed a tax refund must file for it in a timely manner. The amount of the refund cannot exceed the portion of the tax paid within 3 years of the filing of the claim. However, a person who is considered “financially disabled” can have the refund claims period extended for the period of disability; this is called “tolling the statute of limitations.”

An individual is financially disabled if he or she is unable to manage financial affairs by reason of a medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months. An individual is not considered to have such an impairment unless proof of the impairment is provided.

Failure to provide proof is what prevented one taxpayer from receiving a refund of $3,238 for her 2005 taxes. Her return was filed in 2011, but she claimed financial disability because of various health conditions: severe depression, suicidal ideation, alcoholism, a diagnosis of lupus, mental and physical illness, pneumonia, and pleurisy. The IRS requested that she provide a doctor’s note containing certain information spelled out in Rev. Proc. 99-21:

1. The name and description of the disabling condition(s);
2. That in the physician’s opinion, the condition (or conditions) rendered the taxpayer unable to manage her financial affairs;
3. That in the physician’s opinion the impairment lasted at least 12 months; and
4. To the best of the physician’s knowledge, the period of time that the financial disability has lasted.

Because of the failure to provide the doctor’s note, the statute of limitations could not be tolled and, therefore, the court lacked jurisdiction to consider the refund claim.

Source: Olga E. Martinez, CA-FED, 7/25/13