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In Wattleton v. Mnuchin, No. 1:19-cv-01893 (D.D.C 2020) an individual incarcerated following his successful assertion of insanity as a defense to criminal charges survives the motion to dismiss stage of his refund proceeding. He has a long way to go to win the case, but his success at this level represents a rare victory in a financial disability case. We have written about financial disability many times. A sample of posts can be found here, here and here.
Mr. Wattleton was indicted in 1999 for making telephonic threats. Experts from both sides agreed that he was legally insane at the time of the alleged offense. He was diagnosed with delusional disorder, persecutory type, a form of mental illness described as very severe. The jury found him not guilty by reason of insanity. The court ordered him committed to the custody of the Attorney General under the provision dealing with the criminally insane, and he has remained in custody since, having been currently and indefinitely committed for psychiatric treatment. This seems like a strong basis for a financial disability case.
He apparently worked and had withholding from 1993 to 1999. He would now like to obtain a refund for those years almost a quarter century later. It does not appear that he has filed the back returns, and the court did not clearly explain the filing of the claim for refund part of his case. Nonetheless, the court moves forward to consider whether the statute of limitations might still be open preserving his right to a refund for these years.
The IRS picks up on language from his allegations and says that he only alleges insanity during the years 1993 to 1999. This seems a bit disingenuous, since the federal government has been holding him ever since and, although I did not go and read the statute, I sincerely hope it says something to the effect that if you are cured of your mental illness they let you out. The court picks up on this thought and finds that while true that Mr. Wattleton only specifically mentions 1993-1999 his allegations leave “less clear … when, if at all, plaintiff’s alleged financial disability ended. Plaintiff alleges, in the present tense, ‘that he suffers from a financial disability.’” The court also finds that his subsequent pleadings make it clear his mental health issues are ongoing. It appears he did not have someone to act on his behalf during all of this period – another hurdle he must pass in meeting the statutory requirements for financial disability.
The IRS then argues that without more the mere fact that he has a diagnosed mental health condition does not necessarily equate to financial disability. The court mistakenly describes Rev. Proc. 99-21 as a regulation. It is definitely not a regulation, and no regulation exists under this statute, despite it being over two decades old. In the prior posts we have discussed extensively the shortcomings of this Rev. Proc., as have other courts.
The court notes that its record regarding Mr. Wattleton’s submissions to the IRS raises “significant questions about whether plaintiff has complied with” the Rev. Proc. My observation of these cases is that financially disabled individuals experience difficulty following the rules set out in the Rev. Proc. They often lose their cases for failure to follow those rules. Yet, if they carefully followed those rules, we would question whether they were financially disabled. This is an area where courts need to provide a plaintiff, particularly one handling all or part of their case pro se, with a reasonable opportunity to put before the court information supporting financial disability. Certainly, being incarcerated for 20 years because of a severe mental health problem seems like a good start to that proof.
We don’t know why Mr. Wattleton suddenly woke up one morning and decided he wanted his refunds from long ago, but if he did in fact have refunds on his taxes from the years 1993-1999, he should have a reasonable opportunity to obtain them despite their age and trying to knock him out on technical procedural grounds based on a poor Rev. Proc. seems harsh. I applaud the court for keeping the case open. Perhaps the opinion or this blog post will inspire someone to come to his aid.
His case is moving locations for the next stage. He brought the case in the district court in D.C., but it finds that it does not have venue. Citing a list of cases supporting the concept that a prisoner does not become a resident of the state where they are incarcerated, the court determines that on the available information Mr. Wattleton is a resident of Georgia and transfers the case to the Northern District of Georgia. (He is incarcerated in Rochester, Minnesota making D.C. the wrong place on several levels.) The three paragraph discussion of venue in these situations is interesting for those seeking knowledge of the venue of civil suits by incarcerated individuals in federal district court. In a law office when you dump work off on a colleague, it can create hard feelings. The venue ruling is not exactly the same thing, but I wonder how judges feel as they pass or receive cases under this circumstance. Some lucky judge in Georgia is about to receive a case which has a good emotional basis for relief but perhaps a weak procedural one. It may be that some docket attorney in the Southern Division of Civil Trial Section of the Department of Justice is about to be just as lucky.
A financial disability case brought by someone held in the penal system for two decades because of a mental health problem seems like a strong case at least on the disability side. Because he did not follow the picky, never commented upon rules of the two-decade old Rev. Proc., the IRS, through the Department of Justice Tax Division, will continue seeking to dismiss the case on procedural grounds. If it becomes clear that he did in fact have refunds during the years 1993-1999 and if a court looks hard at the Rev. Proc., which the IRS created without input from the community, it may find a way to give him some money. Should another written opinion occur, I expect we will post again.