As previously discussed, the statute of limitations for claiming a refund with three years from the date the return was filed or two years from the date the tax was paid, whichever is later. However, the IRS allows that statute of limitations to freeze in one particular circumstance under IRC 6511(h).
Under IRC 6511(h), the taxpayer must be financially disabled in order to freeze the statute of limitations. Financial disabled means he is "if such individual 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."
Congress also gave the IRS the power to determine the form of the proof that a condition existed. As such, the IRS requires a written physician's statement containing the following to prove a financial disability: (1) Name and description of physical or mental impairment, (2) Physician’s medical opinion that taxpayer could not handle his financial affairs, (3) Physician’s opinion on that it was likely taxpayer would die or be disabled for 12 months, (4) Specific time period taxpayer was impaired, (5) taxpayer needs to certify no one else was authorized to handle affairs.
The last requirement is the most important. If the taxpayer has someone authorized to handle his financial affairs during his disability, then the statute does not freeze. The thinking behind this is that the person handling the affairs could handle filing any claim for refund while the taxpayer was financial disabled.
Relevant Cites:
IRC 6511(h)
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