In October 2005, Carlton Stauffer executed a durable power of attorney (“DPA”) naming his son, Hoff Stauffer, as his agent.  Stauffer v. Comm’r, No. 18-2105 (1st Cir. Sept. 16, 2019).  The DPA granted broad authority to Hoff to act on Carlton’s behalf, including the authority to “prepare, execute and file in [Carlton’s] behalf . . . any and all income tax declarations and returns . . . and to represent [Carlton] before the Internal Revenue Service . . . with respect to any claim or proceeding having to do with [his] tax liabilities.”  Carlton was elderly and Hoff began helping his father manage his finances, including opening an account at T. Rowe Price and depositing funds there for Carlton.  In March 2006, Carlton and Hoff had a falling out and Hoff told his father that he would no longer be exercising any rights granted to him under the DPA.  In response, Carlton drafted three notices revoking the DPA, but he never sent them to anyone, including Hoff.  The father and son stopped talking until about June 2009, when Carlton loaned Hoff $1.25 MM, and Carlton gave Hoff permission to withdraw the funds directly from Carlton’s T. Rowe Price account.  In 2012, Hoff again withdrew funds directly from that account at Carlton’s request.

Carlton passed away in October 2012, and Hoff was named as personal representative of the estate.  Carlton had failed to file his federal income taxes for several years before his death, and Hoff, as representative of the estate, filed Carlton’s returns for years 2006-2012 in April 2013.  Carlton’s 2006 tax return reported a tax overpayment of $137,403, and Hoff requested that amount be refunded or applied to other years’ deficiencies.  The IRS denied the refund claim as untimely, claiming that the statute of limitations for Carlton’s claiming a refund for taxes paid for 2006 ran in October 2010.  See IRC section 6511(a).  Hoff, on the other hand, claimed that the statute of limitations had not run because the running of the period was suspended due to his father’s inability to manage his financial affairs.  See IRC section 6511(h).  Neither Hoff nor the IRS argued that Carlton was able to manage his own financial affairs.  Rather, the outcome of the case turned upon whether Hoff had the power to file Carlton’s returns on Carlton’s behalf.  If Hoff did not have power to file Carlton’s 2006 tax return during Carlton’s life, then the refund claim was timely filed after Carlton’s death.  Whereas, if Hoff did have that power, then the statute of limitations period was not suspended and the claim was time-barred despite Carlton’s financial disability.  See IRC section 6511(h)(2)(B). 

Hoff argued that the DPA had been renounced by him or that it had been revoked by Carlton so Hoff did not have the power to file Carlton’s returns on his behalf.  Moreover, Hoff argued that, even if he did have the power to file the missed returns under the DPA, he did not have a duty to file them or the knowledge that the returns still needed to be filed.  The court ultimately rejected all of Hoff’s arguments, finding that the running of the statute of limitations period had not been suspended, the period had run, and, therefore, the court lacked jurisdiction to issue a refund.  In so finding, the court applied state law to determine whether the DPA had been revoked.  Under state law, Hoff was required to deliver his renunciation of the DPA in writing to Carlton himself.  Hoff’s verbal renunciation was insufficient.  Likewise, Carlton never delivered his draft letters to Hoff notifying him that the DPA had been revoked and Hoff no longer had authority to act on Carton’s behalf.  Based on those facts, and the post-makeup father-son dealings, the court found that the DPA remained in effect even until Carlton’s death.  Regarding Hoff’s second argument, the court refused to read additional language into IRC section 6511(h)(2)(B).  Hoff’s power to file Carlton’s returns was all that was needed in order for the statute of limitations to run.  Even if Hoff had no duty to file the returns (determined under state law fiduciary rules) and Hoff had no knowledge that the returns needed to be filed, the power granted to Hoff under the DPA was sufficient for the statute of limitations period to continue running even though Carlton was legally unable to file them himself due to his financial disability.

What is the takeaway from this case?  Agents must be aware of the powers they have under a power of attorney!  It is common for a person to execute a power of attorney, but never to inform his appointed agent of the powers granted under the power of attorney.  That may be especially true in the case of a “springing” power of attorney, where the agent has no power to act on the principal’s behalf until the principal has become financially disabled.  It is at that moment of disability when the agent’s knowledge of powers under a power of attorney is most important.  For federal income tax purposes, the statute of limitations to request a refund of taxes overpaid can be as short as two years.  An agent who is unaware of his powers—let alone his duties or the actual circumstances of the principal’s income taxes—is unlikely to take the steps necessary to request refund of taxes rightfully belonging to the principal.  It is the agent’s power alone that continues the running of the statute of limitations.

In Carlton’s case, it is likely that family dynamics played a large part in Hoff’s failure to timely filing his father’s tax returns before Carlton’s death.  In the majority of cases, however, advance communication between a principal and his appointed agent concerning the powers and duties the agent has under a power of attorney will go a long way to ensuring that the principal’s financial wellbeing is safeguarded when it is needed most.