Power of attorney revoked due to taxpayer's mental

incompetence.
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Under common law, a power of attorney (POA) becomes void if the taxpayer becomes mentally or
physically incompetent. A recent case highlights the need for both practitioners and the Service to
be cognizant of this rule. Under normal circumstances, a representative with authority under a POA
has the authority to sign a consent to a waiver of the statute of limitations (SOL) on assessment;
however, the POA is revoked on the subsequent incapacity of either the principal or the agent. In
Halper, TC Memo 1997-58, the taxpayer's mental and physical incompetence revoked the POA,
which caused the SOL to expire before a deficiency notice was mailed.

In 1988, Halper signed a POA naming a representative. In April 1991, he suffered a massive stroke,
leaving him both physically and mentally incapacitated. After the stroke, the representative
continued to act on Halper's behalf in IRS matters under the apparent authority of the POA executed
before the stroke. On Sept. 23, 1991, the representative alone signed Form 872, Consent to Extend
the Time to Assess Tax, which purported to extend the SOL for 1985 and 1986 until Dec. 31, 1992.
Along with Form 872, the representative attached a letter that stated: "I am returning herewith the
two copies of form 872, signed by me alone as Mr. Halper's representative. As I advised you, Mr.
Halper suffered a stroke and as a result cannot speak and is paralyzed in half of his body." As a
result of Halper's condition, court-appointed guardians were named subsequent to the
representative's signing Form 872.

In a second letter addressed to the IRS

agent on May 20,1992, the representative
wrote: "Because Mr. Halper is presently
not competent to authorize my agreement
to the figures which you state represent
sums owed to the IRS, I cannot sign Form
870 [Waiver of Restrictions on Assessment
and Collection of Deficiency in Tax and
Acceptance of Overassessment] which you
have enclosed. As you may know, while he
was competent, Mr. Halper believed that
the assessed amounts were not accurate to
the extent stated."

Although he did not sign Form 870, the representative

signed an additional Form 872 on Aug. 27, 1992,
purporting to extend the SOL for 1985 and 1986 to
Dec. 31, 1993. Subsequently, a new POA was executed
by one of Halper's court-appointed guardians, naming
new representatives (excluding the prior
representative). A new Form 872 was signed by the
new representatives, extending the SOL for 1985 and
1986 to Dec. 31, 1994. A notice of deficiency setting
forth the taxpayer's income tax liabilities for 1985 and 1986 was finally sent on Sept. 19, 1994.
The Tax Court determined that the Forms 872 were regular on their faces. When a Form 872 is
regular on its face and the Service reasonably relies on it, case law prevents taxpayers' claims of
estoppel or a similar doctrine to attack the validity of the forms they signed even if the taxpayers
later prove they were incompetent when they signed them (Hollman, 38 TC 251, 260 (1962); Dale,
TC Memo 1982-654). However, these cases differed factually from the case at hand; they involved
situations in which the consents were signed by taxpayers rather than their representatives. More
importantly, there was no evidence in these cases that the IRS had either actual notice of, or reason
to suspect, the taxpayers' incapacity.
The court found that the prior representative's letter indicating Halper was "presently not
competent to authorize my agreement" should have "raised a red flag" for the Service, triggering
further investigation. The letter contained a clear statement of
http://www.elderlawanswers.com/estate-planning incompetency, sufficient to put the IRS on notice
that the POA authorizing the representative to represent the taxpayer was revoked. At a minimum,
the first representative's POA was invalid when he signed the consent to extend the SOL until Dec.
31, 1993. Therefore, the chain of consents to extend the limitations period was broken and the SOL
expired.
Halper highlights the responsibility of both practitioners and the Service when a POA is concerned.
Pitfalls await the Kansas City Estate Planning Lawyers unwary in the Code's procedural areas. As is
often the situation, knowledge and understanding of the common law can assist practitioners in
working with the Code's intricacies.