Murrin and Zuch provide insight into the limits of taxpayers’ rights

Editor: Melissa L. Wiley, J.D.

In Zuch, No. 24–416 (U.S. 6/12/25), the Supreme Court, reversing the Third Circuit, found that the Tax Court lacked jurisdiction over a taxpayer’s appeal of the IRS’s determination following a Collection Due Process (CDP) hearing when the IRS had already stopped pursuing a levy. In Murrin, No. 24–2037 (3d Cir. 8/18/25, amended 10/17/25), the Third Circuit upheld the Tax Court’s ruling that a taxpayer was liable for a tax assessment that was made 20 years after her return was filed, due to the fraud of her return preparer. Taken together, the two recent cases illustrate how taxpayers’ intentions can take second place to overarching facts concerning their returns.

Zuch

In Zuch, Jennifer Zuch and Patrick Gennardo were married from 1993 to 2014. In September 2012, they delinquently filed separate returns for the 2010 tax year. Prior to filing these returns, in June 2010, the couple submitted an estimated tax payment of $20,000 to the IRS for the 2010 tax year. Gennardo also, in January 2011, sent an estimated tax payment of $30,000 for the 2010 tax year. The payments were not designated to either taxpayer when they were made. In her return, Zuch did not claim any of the estimated tax payments and showed an approximately $750 overpayment of tax. Gennardo‘s 2010 tax return showed adjusted gross income of $1,077,213 and tax due of $385,393 and claimed $10,000 of the estimated tax payments. However, the IRS sent Gennardo a notice in October 2012 stating that all $50,000 in estimated tax payments had been assigned to his 2010 tax liability.

In November 2012, Zuch filed an amended 2010 tax return to report additional income of $71,000 from a retirement account distribution, resulting in about $28,000 in additional tax due. She claimed the $50,000 estimated tax payments against the additional tax amount, but the IRS did not allow it because they had already been applied to Gennardo’s 2010 tax liability.

Thereafter, in March 2013, Gennardo amended his 2010 return, including a statement that he was doing so partly to notify the IRS that the estimated payments of $50,000 should be allocated to Zuch. However, the Service did not accept the requested allocation to Zuch.

When Gennardo filed his 2010 tax return, he also filed an offer in compromise (OIC) that would satisfy his tax debts for tax years 2007 through 2011. In June 2013, Gennardo submitted an amended OIC to increase the amount of his offer. The IRS accepted the increased offer. During the OIC process, the Service gave Gennardo a document showing that it had credited the $50,000 in estimated payments to his outstanding tax liability.

The IRS sent Zuch a notice of intent to levy in August 2013. She requested and received a CDP hearing. Despite her legal counsel submitting a signed declaration from Gennardo before the hearing that directed the IRS to assign the $50,000 to Zuch’s tax liability, the Service’s Office of Appeals (Appeals) sustained the levy.

Zuch then petitioned the Tax Court for relief. However, during the years the case was pending, Zuch made tax overpayments that the IRS was able to use to fully offset her liability for the 2010 tax year. Because the IRS no longer had a reason to levy Zuch, it moved to dismiss the Tax Court case as moot, arguing that the Tax Court lacked jurisdiction over the case because the Service did not have a basis to levy on Zuch’s property. The Tax Court agreed and dismissed her case (Zuch, No. 25125–14L (T.C. 4/6/22, order of dismissal)).

Zuch appealed the Tax Court’s decision to the Third Circuit, which reversed the Tax Court, holding that the Tax Court had jurisdiction to review the application of Zuch’s offset overpayments to her 2010 tax liability (Zuch, 97 F.4th 81 (3d Cir. 2024)). The Third Circuit stated:

The dispute comes down to this: whether, in the midst of litigation over a contested tax liability, the IRS is free to deprive the Tax Court of jurisdiction by the expedient of taking the taxpayer’s tax refunds and applying them to that liability. The answer is no. The IRS’s arrogation to itself of the power to eliminate pre–deprivation judicial review of liability by seizing a taxpayer’s money to cover a disputed debt is not supported by relevant statute, common law (incorporated into statute), or mootness principles.

The IRS appealed to the Supreme Court. The Supreme Court found that the payment of Zuch’s outstanding tax by the offset of her refunds deprived the Tax Court of jurisdiction over the dispute. In its opinion, the Supreme Court stated that the “determination” in Sec. 6330(d)(1) refers to a “binary decision whether a levy may proceed.” The basis of a decision under Sec. 6330(c)(3) takes into consideration verifying that the IRS has complied with “any applicable law”; the issues raised by the taxpayer; and whether the levy “balances the need for the efficient collection of taxes” against concerns that a levy “be no more intrusive than necessary.” In other words, the Supreme Court said, the statute specifies those three considerations as “inputs” and the Appeals officer’s determination as an “output.” “Here, the dispute about Zuch’s estimated tax payments was an input into the ‘determination’: an ‘issu[e] raised’ by Zuch that the Appeals officer was required to consider. … The ‘determination’ was the Appeals officer’s decision upholding the IRS’s decision to issue a levy,” the Court stated.

The Supreme Court’s decision thus raises a concern that the Service could avoid a potentially adverse decision by simply withdrawing its threat of a levy and leaving open further collection activities without its consideration during a CDP hearing and the right to take the dispute to the Tax Court.

Justice Gorsuch’s dissent

In a dissent, Justice Neil Gorsuch stated that the Court’s opinion “leaves Ms. Zuch with no meaningful way to pursue her argument that the IRS erred or to recoup the overpayments she believes the IRS has wrongly retained. … The IRS seeks, and the Court endorses, a view of the law that gives that agency a roadmap for evading Tax Court review and never having to answer a taxpayer’s complaint that it has made a mistake.” As a result of the decision, Gorsuch wrote, Sec. 6330 proceedings “are essentially risk–free for the IRS. It may pursue a levy and argue its case to the Tax Court. Then, if the Tax Court seems likely to side with the taxpayer, the IRS can drop the levy and avoid an unfavorable ruling on the taxpayer’s underlying tax liability.” Then the Service may still pursue other collection methods, leaving taxpayers without a means of challenging them, he added.

Does Vigon survive the Supreme Court’s holding in Zuch?

In Vigon, 149 T.C. 97 (2017), the Tax Court held that the IRS cannot moot a case by withdrawing its proposed collection activity once the Tax Court had “obtained jurisdiction of a liability challenge.” In Vigon, the taxpayer had requested a CDP hearing after the Service had assessed penalties pursuant to Sec. 6702 and filed a notice of federal tax lien. The taxpayer challenged the validity of the penalties at the CDP hearing. Appeals agreed with the IRS and issued a notice of determination sustaining the lien. The taxpayer filed an appeal of the determination to the Tax Court. During the pendency of the Tax Court matter, the IRS abated the penalties and released the lien. Thereafter, the Service filed a motion to dismiss the Tax Court case as moot. The Tax Court held that the case was not moot because Sec. 6702 penalties have no period of limitation and the IRS could reassess those same penalties at any time. The Tax Court found that the taxpayer’s right to judicial review would be lost if the Service reassessed the penalties, as Sec. 6330(b)(2) provides that a taxpayer is only entitled to a single hearing for each tax period.

The Tax Court’s holding in Vigon would seem to survive the Supreme Court’s holding in Zuch; however, the breadth of the Vigon decision may reasonably be called into question.

Steps taxpayers who are similarly situated to Zuch should consider

Gorsuch’s dissent in Zuch suggests procedures that taxpayers should consider if their refunds are offset during a CDP hearing. It reminds taxpayers that administrative claims for the offset refunds must be filed within two years from the time the tax was paid (Sec. 6511(a)).

As noted in footnote 4 of the dissent, although Sec. 6330(e)(1) “automatically suspends the limitations period for filing a refund suit in district court during the pendency of Tax Court proceedings, the government contends that it does not automatically suspend the period for filing an administrative claim.” (The Supreme Court made multiple references to a refund suit being the default rule in tax matters. In fact, a refund suit is the least favored of the avenues available to taxpayers as a practical matter.) However, caution in this arena is worthy of consideration.

In essence, the holding in Zuch leaves taxpayers in a similar situation with a procedurally complex circumstance with an unavoidable increase in the expenditure of time and financial resources. It may provide an argument that the Service should stay a CDP hearing if a previously filed amended return or reconsideration was in process at the time of the CDP hearing. Taxpayers regularly file a request for a CDP hearing in an attempt to challenge the underlying liability. The Tax Court has made it clear that a challenge to a liability cannot be made if the taxpayer had a previous opportunity to contest the liability. The IRS is in full accord with this view and will deny any attempt to do so, whether as a direct challenge or via a request for an OIC based on doubt as to liability or a reconsideration.

An argument that the CDP hearing should be stayed based on the uncertainty raised by a doubt–as–to–liability OIC or a reconsideration precludes Appeals from issuing a determination until the existing dispute is resolved. (Appeals places a stay on the CDP hearing while an OIC based on doubt as to collectibility or an innocent–spouse–relief request is outstanding. From a broader perspective, the rules governing the issuance of an injunction before the federal court entail a material consideration of whether there is a likelihood of success, given the disputed facts and law.)

Murrin

In Murrin, for tax years 1993 through 1999, Stephanie Murrin relied on a tax return preparer, Duane Howell, to prepare her federal income tax returns. Howell placed false or fraudulent entries on those returns with the intent to evade tax. Murrin did not cause the false or fraudulent entries or intend to evade tax.

In 2019, the Service issued Murrin a notice of deficiency for the 1993 through 1999 tax years. The statutory notice included a tax deficiency of $65,318, $13,064 in accuracy–related penalties, and an estimated $250,000 in interest.

The IRS maintained that the exception for fraudulent returns provided by Sec. 6501(c) applied. Sec. 6501(c)(1) states, “In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.”

Murrin argued that the statute of limitation on assessment had expired and that the exception under Sec. 6501(c)(1) applies only in the case of taxpayer fraud, not tax preparer fraud.

The Tax Court agreed with the IRS, as its prior precedents, including Allen, 128 T.C. 37 (2007), supported the Service’s position (Murrin, T.C. Memo. 2024–10). In Allen, the Tax Court found that the Sec. 6501(c)(1) exception to the statute of limitation included a circumstance where a tax return preparer prepares a false or fraudulent return with the intent to evade tax. Murrin appealed to the Third Circuit.

The Third Circuit affirmed the Tax Court, concluding that Sec. 6501(c)(1) does not require taxpayer intent. “First, the plain and ordinary meaning of the phrase ‘intent to evade tax’ reveals no taxpayer–only limitation,” the Third Circuit stated. “Neither ‘intent’ nor ‘to evade’ cabin the phrase ‘intent to evade tax’ to a taxpayer because nothing about either term is restricted to certain individuals.” Second, the Third Circuit stated, the passive voice in Sec. 6501(c)(1) also indicated that the statute does not depend on a taxpayer’s intent. “Congress was agnostic” about whose intent was needed, the court said, citing Bartenwerfer v. Buckley, 598 U.S. 69, 76 (2023).

In Bartenwerfer, the Supreme Court interpreted a Bankruptcy Code statute that prevents the discharge of a debt that arises from fraud. The debtor in Bartenwerfer was the partner of the individual who committed the fraud. The Supreme Court found that the debt was nondischargeable, as it arose from the commission of a fraud, even though Bartenwerfer had not committed the fraud herself. As in Murrin, the congressional use of the passive voice in the fraud provision was interpreted to support a finding that the debt was not dischargeable.

Two footnotes in Murrin suggest issues to be considered and possibly advanced in argument in opposition to an open statute of limitation arising from preparer fraud. At footnote 7, the court stated, citing Browning, T.C. Memo. 2011–261, “But to the extent that Murrin suggests that courts are simply unable to address whether other third parties’ intent to evade tax can trigger § 6501(c)(1), the Tax Court has proven capable of doing so.”

In Browning, the Tax Court, in analyzing the preparer’s possible culpability, found that the preparer appeared to believe that an offshore employee leasing program “would legitimately accomplish the desired tax deferral.” The court further stated that “while perhaps demonstrating poor professional judgment on his part, [that] does not amount to fraud” and considered whether the tax preparer’s efforts met the tests for fraud. The Tax Court found a lack of “clear and convincing evidence” of fraud in the returns filed for tax years 1995 through 1997. The court did, however, find fraud in the returns for tax years 1998 through 2000.

In Murrin, at footnote 13, the court stated that even if the statute–of–limitation exception in Sec. 6501(c)(1) applies, taxpayers are free to challenge accuracy–related penalties and interest. It is fair to believe that the court may have thus pointed out a way of minimizing the economic damage from the application of the fraud exception.

The Third Circuit’s opinion in Murrin is in apparent conflict with the Federal Circuit’s holding in BASR Partnership, 795 F.3d 1338 (Fed. Cir. 2015). In BASR, the Federal Circuit held Sec. 6501(c)(1) applies only when the Service establishes that the taxpayer, and not a third party, acted to effectuate a fraud. The decision predates the Supreme Court’s holding in Bartenwerfer and thus may not be broadly relied upon (see City Wide Transit, 709 F.3d 102 (2d Cir. 2013)).

The Murrin holding allows for the Service to maintain that the statute of limitation should be extended due to third–party fraud in perpetuity. The holding leaves taxpayers in a position that they may have to defend against a claim years after records have been destroyed and memories have faded.

The plain language of Sec. 6501(c)(1) does not limit the exception to fraud by taxpayers. The plain language of Sec. 6501(c)(1) has now been interpreted in two ways. To the Third Circuit, fraud found in any return can oblige the taxpayer to pay deficiencies, penalties, and interest after the typical three–year statute of limitation runs out. The Federal Circuit has taken a different tack, finding that outside counsel’s fraud does not implicate the taxpayer and trigger the Sec. 6501(c)(1) exception. The holding in Murrin unavoidably takes from taxpayers in such instances the belief that a tax year has been closed.

On Oct. 17, 2025, the Third Circuit granted a rehearing in Murrin and corrected an error in its earlier opinion stating that Murrin had not challenged the imposition of interest, allowing her to do so in further proceedings. The court denied Murrin’s request that the rehearing be en banc rather than by a panel.

A more complex process

The Murrin and Zuch opinions reflect a reading of the relevant statutes that leaves taxpayers with a more complex, costly, and time–consuming process for prosecuting their rights under the law.

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Contributors

Timothy Burke, CPA, J.D., LL.M., has a practice, Burke & Associates, in Braintree, Mass. Melissa L. Wiley, J.D., is a partner with Kostelanetz LLP in Washington, D.C. Burke is a member, and Wiley is chair, of the AICPA IRS Advocacy & Relations Committee. For more information about this column, contact thetaxadviser@aicpa.org.