Woman Wins Victory--but No Refund--in IRS Battle

A retired Los Angeles schoolteacher has won a hollow victory in her fight to reclaim $7,000 that her senile father mistakenly paid to the Internal Revenue Service.

Although 93-year-old Stanley McGill of Granada Hills owed no taxes when he sent a check in 1984, the IRS kept the money. His daughter did not discover the mistake until he died in 1988--too late to obtain a refund, the IRS said.

Pressed by President Clinton, the Treasury Department relented somewhat last week and announced a proposed rule change that would waive the time limit for seeking refunds for taxpayers who overpaid because of a “medically determined physical or mental disability.”

However, this little-noticed tax change, contained in the president’s budget, will apply only to overpayments beginning next year--too late for the overpaying taxpayer’s daughter.

“There’s no question the law needs to be changed. That’s why I got into this,” said Marian Brockamp, the retired teacher, who now lives in Prescott, Ariz.

Encino tax attorney Robert F. Klueger, who has appealed Brockamp’s case at no charge all the way to the Supreme Court, said he was disappointed that the change will not help his client.

“She has succeeded in changing the law, which is good. But it doesn’t seem fair that she is shut out from benefiting from it,” Klueger said.

Not optimistic about winning in the high court, the attorney said he may ask a member of Congress to introduce a special bill to obtain a refund for Brockamp.

Her case, U.S. vs. Brockamp, 95-1225, shines a harsh light on how strict enforcement of the rules, rather than a sense of fairness, reigns in the area of tax law.

“The IRS interprets the law quite strictly when it is to their advantage to do so,” said San Francisco tax attorney Frederick Daily.

In an interview, Brockamp described her father as a brilliant mathematician who devised actuarial tables for insurance companies and models to predict bond income. Upon his retirement, he moved to the Los Angeles area to live with his daughter. After a while, she noticed he could not be trusted to handle his financial affairs.

“He would write a check for $4,000 for a $400 bill,” she said.

Unbeknownst to her, however, he continued to write some checks, including the $7,000 payment to the IRS in April 1984.

She found the canceled checks after his death.

“When I contacted them [the IRS], they admitted he didn’t owe the money. But all I got from them was very arrogant letters. And it made me mad,” she said. “If a business kept money they weren’t owed, they would be in trouble. I can’t do that and you can’t do it, but the IRS does it,” she said.

She wrote Klueger about her case, and when he was unable to obtain a refund, he filed a lawsuit on her behalf.

And, to the government’s surprise, Brockamp won in the U.S. 9th Circuit Court of Appeals, based in San Francisco.

“It would be unconscionable to allow the government to retain money that it concedes it was not owed and only received due to a 93-year-old man’s senility,” wrote Judge Charles E. Wiggins.

But last year, the Justice Department announced it was appealing this ruling to the Supreme Court. The tax agency should not be forced to reopen thousands of old cases, regardless of the reason, its attorneys said.

On the same day the appeal was filed, Clinton announced he was ordering the Treasury Department to study a change in the law. That move resulted in last week’s proposal, which is expected to win easy approval in Congress.

Generally, taxpayers who file a return but overpay their taxes have three years to seek a refund.

Under the proposal, this time limit will be waived for years when the taxpayer was incapacitated and “unable to manage his or her financial affairs.” However, the time limit will not be waived for periods when “the taxpayer’s spouse or another person is authorized to act on the taxpayer’s behalf.”

The change will take effect for “tax years ending after the date of enactment,” the department said. The proposal will eventually cost the government an estimated $50 million per year in lost revenue.

During the high court argument in December, the justices suggested that they were not ready to waive the time limits set in current law.

“I expect to lose 8-1 or 9-0,” Klueger said. “The very first question, from [Justice] Ruth [Bader] Ginsburg was: ‘What does your case have to recommend itself, other than fairness?’ ” he recalled. “I knew I was in trouble at that point.”