Supreme Court lets stand IRS power to assess tax anytime for preparer fraud

The Supreme Court’s decision Monday to deny certiorari in Murrin lets stand a Third Circuit holding that the Sec. 6501(c)(1) unlimited period for the assessment of tax applies when a fraudulent return is filed with the intent to evade tax, regardless of whether the intent is that of the taxpayer or another person, including the taxpayer’s return preparer.

Stephanie Murrin was assessed taxes and penalties in 2019 based on returns she filed from 1993 to 1999 that were completed by a tax return preparer. She now owes $328,000, including interest on the assessment, her attorneys said in a petition for certiorari.

Murrin challenged the IRS’s determination in Tax Court, claiming that the assessment was barred by the three-year statute of limitation in Sec. 6501(a) (Murrin, T.C. Memo. 2024-10). The IRS typically has three years from the date a return is filed to assess tax. But under Sec. 6501(c)(1), the IRS can assess tax at any time when a false or fraudulent return is filed with the intent to evade tax.

The Tax Court sided with the IRS.

Murrin appealed the Tax Court’s decision to the Third Circuit, arguing there that Sec. 6501(c)(1) did not apply because, although her tax return preparer acted with the intent to evade tax, she did not.

The Third Circuit affirmed the Tax Court’s decision, holding that the Sec. 6501(c)(1) extended statute of limitations did not require the intent of the taxpayer to evade tax to apply. This allowed the IRS to assess tax and penalties related to Murrin’s 1993 through 1999 returns almost 20 years after they were filed.

Nothing in Sec. 6501(c)(1) “implicitly indicates that the intent to evade tax must belong to the taxpayer,” the government said in its brief to the Supreme Court. Congress allowed the unlimited period because “fraud cases ordinarily are more difficult to investigate than routine audits,” citing Badaracco, 464 U.S. 386 (1984).

“We understand Murrin’s frustration with the IRS’s decision to assess tax beyond the statute of limitations due to the wrongdoing of someone other than her. But we are bound by the statute,” the Third Circuit stated in its opinion. “Because the statute is agnostic about who must intend to evade tax, we hold that taxpayer intent is not required.”

The result of allowing assessment without time limits “is devastating for taxpayers who, due to the passage of time, not any fault of their own, cannot prove the accuracy of their tax returns or the fraud (or lack thereof) by their return preparer,” Murrin’s attorneys said in the petition for certiorari. “Those taxpayers are left to defend their tax returns when the government suddenly appears unannounced, out of nowhere, asserting massive tax liabilities from decades earlier.”

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.