The opinion of the court was delivered by: Robert C. Mitchell United States Magistrate Judge
Currently before the Court are cross-motions for summary judgment. For the reasons that follow, the motion for summary judgment submitted on behalf of Plaintiffs (Docket No. 17) will be granted and the motion for summary judgment submitted on behalf of Defendant United States of America (Docket No. 19) will be denied.
Plaintiffs, David Walter and his wife Helen Walter, bring this action against the United States of America pursuant to 28 U.S.C. § 1346(a)(1), seeking to recover federal income taxes for tax year 2002 in the amount of $5,670 that were overpaid yet not refunded by the Internal Revenue Service (IRS). The United States opposes the refund on the ground that the statute of limitations for requesting it has expired.
Prior to the 2002 tax year, David Walter prepared Plaintiffs' joint federal income tax returns, Helen Walter reviewed them, and the Plaintiffs signed and filed those tax returns. David Walter originally prepared paper returns and mailed them to the IRS. In the years leading up to the 2002 tax year, he prepared the returns electronically using the computer program "Quicken," and Plaintiffs submitted them online.
For the 2002 tax year, David Walter made two estimated tax payments of $4,939: one in the first quarter of 2002 and one in the second quarter of 2002. Both payments were made from a bank account at Dollar Bank in his name only. Plaintiffs did not make any additional estimated tax payments for the 2002 tax year. In the beginning of 2003, David Walter prepared Plaintiffs' federal income tax return for the 2002 tax year using Quicken. After David Walter completed the 2002 federal income tax return, Helen Walter reviewed it, and Plaintiffs filed it electronically using Quicken.
Plaintiffs' 2002 federal income tax return was rejected by the IRS because it contained an inaccurate social security number. David Walter corrected this error and attempted to electronically resubmit the joint 2002 federal income tax return to the IRS. Unlike previous years, David Walter did not get a message acknowledging that the 2002 federal income tax return had been accepted and filed. Although David Walter knew that the 2002 federal income tax return had not been accepted and filed, he took no further steps to deal with the situation.
In 2004, David Walter prepared a federal income tax return for the 2003 tax year that claimed credit for the refund that Plaintiffs had requested on the return that they had attempted to file for the 2002 tax year. Plaintiffs' 2003 federal income tax return was rejected by the IRS. At that point David Walter became angry and decided not to file a federal income tax return or pay any federal income taxes for the 2003 tax year. See also D. Walter Dep. at 28.*fn2
David Walter did not file federal income tax returns or pay federal income taxes for the 2003, 2004, and 2005 tax years. The IRS sent Plaintiffs notices of deficiency for the 2002, 2003, 2004, and 2005 tax years, which they ignored. On June 20, 2005, the IRS sent David Walter a notice of levy. He ignored that notice.
In February 2006, the IRS began to levy on dividends that David Walter received on the stocks held in his Morgan Stanley account to satisfy Plaintiffs' estimated deficiency for the 2002 tax year. With respect to the 2002 tax year, the IRS has since returned all the funds that it levied.
David Groetsch, David Walter's broker at Morgan Stanley, repeatedly told David Walter that he needed to get help to resolve his problems with the IRS. Groetsch recommended that Plaintiffs hire attorney James Carney to prepare their delinquent returns. For a number of months, David Walter took no action on David Groetsch's recommendation. In November 2006, David Walter followed David Groetsch's recommendations and enlisted the help of James Carney to deal with his problems with the IRS.
In November 2006, following a telephone conversation with David Walter, Carney met with David and Helen Walter at the Walters' home. Carney sent the Walters a letter agreement explaining how he would proceed to represent them. David Walter read the letter, understood its terms, and he and Helen Walter signed it. In addition, Plaintiffs signed the power of attorney form that the IRS requires. See also D. Walter Dep. at 38-39; Docket No. 20 Ex. B.
Carney took charge of preparing the Walters' state and federal income tax returns for the 2002 tax year and subsequent tax years.*fn3 He also took charge of getting records of the Walters' income from their broker, their banks, David Walter's employer, and companies in which David Walter owned stock. Carney wrote letters requesting those records, which David Walter signed. David Walter also went to a former employer to obtain some records.
In June 2007, Carney filed the Walters' federal income tax return for the 2002 tax year. This return showed three estimated tax payments of $4,939. In September 2007, Carney refiled the Plaintiffs' 2002 federal income tax return at the request of the IRS. The Plaintiffs' 2002 federal income tax return requested a refund of $10,609. However, the Walters would only have been entitled to a $5,670 refund had the 2002 return been timely filed because they had made only two estimated tax payments of $4,939 rather than three such payments.
From January 2000 (and likely earlier) to November 2006 when Carney became involved, the only people authorized to act on Plaintiffs' behalf with respect to financial affairs were: (1) David Walter, who was authorized to handle Helen Walter's financial affairs during this time; and (2) David Groetsch, who was authorized to execute transactions, as instructed by David Walter, on his account at Morgan Stanley during this time. Carney was authorized to act on Plaintiffs' behalf with respect to preparing and filing federal and state income tax returns beginning in November 2006 and continuing to the present. Pursuant to such authority, Carney has prepared federal and state income tax returns for the Plaintiffs for the years 2002 through 2008. Neither David nor Helen Walter has ever had a guardian appointed for him or her.
On January 23, 2008, the IRS sent the Walters a letter denying their claim for a refund of $5,670 for the 2002 tax year because the return had been filed more than three years after its April 15, 2003 due date. Carney filed a timely appeal of the denial of the claim for refund. As part of that appeal, the Walters provided a letter from their family physician, Dr. Vincent Balestrino. The IRS never ruled on this appeal.
The Walters petitioned the Tax Court to redetermine the notices of deficiency for the 2003 and 2004 tax years. Those cases in Tax Court were resolved with a stipulated decision.
Carney then filed the complaint in the instant tax refund suit. The Walters had paid their federal tax liability for the 2002 tax year in full in 2002, prior to filing the instant tax refund suit. The Walters did not pay either their 2003 or 2004 federal tax liability in full prior to filing the instant suit. Following the resolution of the Tax Court cases but after the instant suit was filed, the IRS collected the amounts of principal, penalties, and interest due for the 2003 and 2004 tax years.
Helen Walter is 71 years old. She has suffered from Stiff Person's Syndrome for at least seven years. She has also suffered from depression for at least seven years. She has also suffered from short-term and long-term memory loss for a number of years.
David Walter is 72 years old. He has suffered from extreme clinical depression for at least seven years. He also suffers from diabetes.
David Walter was by training a design engineer. After he lost his job at Matthews International in 1996 because of frequent absences from work to take care of Helen Walter, he found employment as a school bus driver. David Walter was employed as a school bus driver by the Penn Hills School District from 1996 through 2006, when he was forced to quit in part because of his diabetes. During this time, he worked five days a week, four hours a day. He drove to work each day. Throughout that time, he held a commercial driver's license, which he continues to hold today. David Walter keeps his commercial driver's license because he says that it was easier to keep that license than to revert to a regular license.
David Walter earned a total of $11,790 as a school bus driver in 2002. He opens the mail every two to three days. He pays his and his wife's bills online using Quicken, including bills for his credit cards, his wife's credit card, gas, electric, phone, television, utilities, his and his wife's doctor, his and wife's attorney, and his use of the Quicken program. Quicken does not pay bills automatically. Rather, David Walter receives bills via U.S. mail, opens them, enters the bill into the Quicken program, enters the amount to pay, then enters a password to submit the payment. He has paid his bills in this manner for more than a decade. He does not have to do any calculations to pay the bills using Quicken.
Although David Walter does pay some bills on time (i.e., within a month of receipt), he normally pays his bills one to two months late, and as much as three months late. He often delays paying bills until he gets second or third notices and/or threats to shut off electricity and often incurs late charges. When he enters a bill into Quicken, it provides him with an estimated date that the payment will be delivered to the creditor. Based on the estimated payment date, he will sometimes go to the Post Office and submit the payment via U.S. mail instead of using Quicken so that the bill is paid sooner.
None of the Walters' utilities have ever been shut off as a result of late payments. Some of David Walter's credit cards have been "shut off" for failure to make payments. When his credit cards are "shut off," David Walter pays the credit card bills to reactivate the credit cards. At his deposition, Walter stated that "I just procrastinate. I hate paying out money." (D. Walter Dep. at 36.)
David Walter has investments that consist of bonds, equities, and a trust fund for his grandchildren's education. His investments are held by David Groetsch, Walter's broker at Morgan Stanley, who speaks with David Walter every one to three months. Groetsch makes two types of transactions for Walter: (1) selling investments to raise cash, which Groetsch initiates at Walter's request; and (2) purchasing investments, which Groetsch recommends and Walter accepts. Since Walter's retirement from his job as a school bus driver, most of the transactions have involved selling investments. Before making any transaction, Groetsch always consults with Walter, explains the proposed transaction, and obtains Walter's approval.
David Walter has a bank account at Dollar Bank. At least once a week, he goes to an ATM and withdraws cash. He also deposits checks using an ATM, including checks he receives from his broker. His pension check and the Walters' Social Security checks are deposited automatically into his checking account. He writes checks from his bank account to pay some of his daughter's bills.
David Walter has handled all the household finances for him and his wife since approximately 1979. He pays all their household bills from the bank account at Dollar Bank in his name. Helen Walter has separate money in a bank account at National Bank in both their names. David Walter withdraws money from that account to pay for their vacations and for her to play bingo. Helen Walter does not go shopping alone; David Walter, Helen Walter's daughter, or Helen Walter's sister takes her shopping. When David Walter takes Helen Walter shopping, he pays for her purchases. When her daughter or sister take her shopping, they charge her purchases to a credit card in her name; David Walter then pays that credit card bill using Quicken.
During the period 1996 through 2006 when he worked as a school bus driver, David Walter signed and filed tax returns for the Penn Hills School District/Municipality, consisting of a statement verifying that he had earned the amount of wages shown on the statement and had taxes withheld from his pay. In addition, David Walter continued to pay many township, county, and ...