Powers of Attorney: Analyzing Differences between Federal/State Statutes of Limitations and an Agent’s Authority and Duty

July 20, 2020

A recent decision, Stauffer v. Internal Revenue Service, presents an opportunity to review an important difference between the limitations periods in the Internal Revenue Code (IRC) and New York Civil Practice Laws and Rules (CPLR) applicable to persons under a mental disability who have appointed an agent through a power of attorney (POA). Specifically, while a mentally disabled person/principal may be excused from acting within certain time limitations imposed by state law, this is not true under the IRC, even if the agent has no legal duty to act on behalf of the principal. Thus, a principal’s interests may be harmed due to the inaction of the agent, yet the agent had no duty to take that action. The Stauffer decision also allows an opportunity to review the difference drawn between an agent’s authority and duty where an agent’s inaction caused, or is alleged to have caused, a loss to the principal.

The Statutes of Limitations
New York State Law
The so-called “insanity toll” at CPLR § 208 serves to protect parties who cannot protect their legal rights due to their general inability to function in society. Thus, for those who lack the ability and capacity, due to a mental affliction, to pursue their lawful rights, this toll will relieve them of the strict time restrictions otherwise imposed by the applicable statute of limitations.

Significantly, under New York law, if another person holds a POA to act on behalf of the mentally disabled person, the existence of that agency relationship does not deprive the disabled principal of the protections of the tolling statute. In other words, if an agent is merely authorized to act on behalf of the principal – and could act – with respect to the particular matter, this fact does not create an exception to the tolling provisions at CPLR § 208. The opposite, however, is the case under IRC § 6511.

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