IRS Refusal to Pay Refund Appealed to High Court

A daughter’s five-year campaign to force the Internal Revenue Service to return a $7,000 check mistakenly written by her late father when he was 93 and senile may reach the U.S. Supreme Court in a case with broad implications for many taxpayers.

Although the IRS admits that the late Granada Hills man never owed such a sum, the agency has steadfastly refused to return his money, saying he missed the deadline to apply for a refund. Now, after a federal appeals court ruled against the tax agency, the IRS and its lawyers have appealed to the Supreme Court.

The woman pursuing the case on behalf of her father’s estate, a 70-year-old retired schoolteacher named Marian Brockamp, said the issue is more a matter of principle than cold cash.

“I just felt that this was not justice,” said Brockamp, who taught for years in the Los Angeles Unified School District, cared for her widowed father, Stanley McGill, until his death, and recently moved to Prescott, Ariz.

“My father was older, senile, he had been ill, he didn’t know what he was doing,” Brockamp said Thursday. “I just thought there must be a lot of other cases like this. You know, you have to stand up for what you believe in.”

In fact, there are a lot of other cases like Brockamp’s--so many, according to a lawyer with the Justice Department, that the IRS fears it could be awash in demands for refunds from taxpayers claiming they were too disabled to meet the deadline if Brockamp prevails.

It’s not that the federal government begrudges McGill his $7,000, said attorney Bridget Rowan; it’s just loath to carve out exceptions to tax laws that ought to be evenly applied.

“We have such a diverse group of taxpayers in this country suffering from a host of problems . . . ,” Rowan said. “It could open the floodgates.”

But the seeming absurdity of Brockamp’s plight has drawn the attention of even President Clinton, who last month directed the Treasury secretary to review the pertinent tax law and determine whether it “should be changed to avoid such unfair results in the future.”

In an apparent reference to the Brockamp case, Clinton noted in a brief, Jan. 31 statement that “the law at times may produce harsh results. This is particularly so when taxpayers fail to seek a refund because of a well-documented disability, or similar compelling circumstance . . . “

The president’s statement was issued the same day that the solicitor general’s office filed its petition for review with the Supreme Court, continuing the defense of the IRS stand. Both sides expect the Supreme Court to agree to hear the matter, which has been percolating for several years and has spawned at least two conflicting decisions by federal appeals courts.

The Brockamp case began in 1984 when McGill, a retired civil engineer living off Social Security and modest returns from investments, sent the IRS a check for $7,000 even though his recent tax bills had amounted to no more than $500 to $800, according to his daughter.

Described as a once-brilliant mathematician who helped develop mortgage amortization tables that are still in use, McGill had clearly lost his mental capacities. He couldn’t recognize old friends, lost his train of thought in conversations after a few minutes, and would “stare blankly when you tried to explain things he knew very well,” Brockamp recalled.

He also had a disturbing habit of writing checks for far more than he owed--often adding a zero to the end of a sum. Brockamp believes that’s what happened with the IRS check--that it probably should have been around $700 instead of $7,000.

Months after McGill’s death in 1988, when he was 98, Brockamp discovered the cashed IRS check among his collection of disorderly paperwork.

At first she thought it was a simple matter that her accountant might clear up by deducting the payment from the modest estate’s taxes. But after both her elderly accountant (who has since died) and his daughter failed to settle it, Brockamp hired Encino tax lawyer Robert F. Klueger, who filed suit against the IRS in U.S. District Court in Los Angeles in 1993.

“I told them two years ago, don’t make a federal case out of this, cut us a check,” said the plain-spoken Klueger. “They wouldn’t do it.”

The IRS had denied Brockamp a refund, saying her father missed a two-year statute of limitations for claims. If he sent the money in April 1984, he should have sought its return no later than April 1986, the agency said. (In some cases, the deadline is three years later.)

But Klueger has been challenging the IRS’ position, using a legal principle called “equitable tolling,” which provides that deadlines for claims of all sorts can be extended when the applicant is disabled. Clearly, he says, McGill was disabled.

Traditionally, government agencies were exempt from the provisions of equitable tolling, which had always applied to private defendants in lawsuits. But in 1990, while reviewing the case of a Veteran’s Administration worker who was late in suing for employment discrimination, the U.S. Supreme Court held that equitable tolling principles could indeed apply to the federal government.

Although the Supreme Court did not specify whether equitable tolling should apply to the IRS, its 1990 ruling nonetheless triggered an unknown number of lawsuits by taxpayers who claim that they’re entitled to refunds but were too disabled to meet the deadline for applications.

Rowan, the Justice Department lawyer who argued against Brockamp’s case last year before the federal 9th Circuit Court of Appeals in San Francisco, said she has received “scores” of calls from attorneys around the country who are pressing such cases.

In one recent equitable tolling case against the IRS, a Hawaii lawyer successfully argued that his alcoholism was enough of a disability to prevent him from filing a timely refund request. The 9th Circuit Court of Appeals also ruled in his favor at the same time that it ruled for Brockamp, said Rowan, who cited the Hawaii case as an example of how equitable tolling could be sorely overused if applied to the IRS.

“How many different variations on this theme can you do?” Rowan asked. “I think there are probably as many disabilities as there are taxpayers.”

Yet within days of last October’s decision favoring Brockamp, a federal appeals court in Richmond, Va.--the 4th Circuit Court of Appeals--sided with the IRS in yet another equitable tolling case. Similarly, the 1st Circuit Court of Appeals in Boston ruled in the IRS’ favor in a 1993 case. That court included Judge Stephen G. Breyer, who is now on the U.S. Supreme Court.

Because of the flurry of recent cases and the conflicting opinions by federal appeals courts, it is likely that the Supreme Court will hear the Brockamp case to resolve the issue, said both Rowan and Klueger.

Klueger said he never set out to fight a Supreme Court case, but understood the IRS’ fear of an unfavorable precedent that might unleash untold numbers of refunds.

“Believe me,” he said, laughing, “this is not a $7,000 issue to the United States [government].”