Key Takeaways
- The Supreme Court declined to hear Murrin v. Commissioner, letting a Third Circuit decision stand that removes the usual three‑year statute of limitations for IRS assessments when a tax return is false or fraudulent and the preparer acted with intent to evade tax, even if the taxpayer was unaware of the fraud.
- The ruling hinges on interpreting § 6501(c)(1) of the Internal Revenue Code: the phrase “intent to evade tax” attaches to the return itself, not necessarily to the taxpayer who filed it.
- Taxpayers who relied on a fraudulent preparer can now face tax, penalties, and interest assessments decades after filing, creating potentially perpetual liability.
- The decision underscores the importance of vetting tax preparers, as a preparer’s misconduct can extend the IRS’s reach far beyond the standard audit window.
- While the ruling is binding only in the Third Circuit, it creates a split with the Federal Circuit’s BASR Partnership precedent, leaving the issue unresolved nationally and inviting future litigation or congressional clarification.
Background
Stephanie Murrin filed joint federal income‑tax returns with her then‑husband for 1993‑1999, using return preparer Duane Howell. Howell’s CPA license had been suspended during those years, and he had a prior conviction for preparing fraudulent returns for other taxpayers—a fact Murrin did not know. Howell deliberately inserted false “office supplies and expenses” deductions for partnerships that never conducted business, omitted his name from the preparer line, varied business addresses, and mailed returns to different IRS service centers to conceal his involvement.
In 2019, nearly two decades after the returns were filed, the IRS issued a notice of deficiency to Murrin, asserting more than $328,000 in tax, penalties, and interest (interest alone exceeded $250,000). Murrin challenged the assessment in Tax Court, arguing that the ordinary three‑year limitations period under § 6501(a) had expired. The IRS countered that the returns were “false or fraudulent with the intent to evade tax,” triggering the exception in § 6501(c)(1) that eliminates any statute of limitations.
Law and the Dispute
Generally, the IRS has three years after a return is filed to assess additional tax. The exception applies when a return is false or fraudulent and there is intent to evade tax. Both parties agreed that Howell’s conduct satisfied the fraud element; the dispute centered on whose intent must be shown. Murrin argued the statute requires the taxpayer’s intent, while the IRS maintained that any intent—taxpayer or preparer—attached to the return suffices.
The Tax Court sided with the IRS, relying on its prior Allen v. Commissioner decision, which held that a preparer’s intent can satisfy § 6501(c)(1).
Third Circuit Reasoning
On appeal, the Third Circuit affirmed. It reasoned that the statutory language—“a false or fraudulent return with the intent to evade tax”—does not specify who must possess that intent. The court concluded the intent attaches to the return itself; a preparer who knowingly places fraudulent items on a return supplies the requisite intent because it is directly connected to the return.
The court noted that elsewhere in the Code Congress expressly references taxpayer conduct when it wishes to limit liability (e.g., fraud‑penalty provisions), suggesting it could have done so here if it intended to require taxpayer intent. It also cited the Supreme Court’s 2023 Bartenwerfer v. Buckley bankruptcy decision, which held that a debt arising from fraud can be nondischargeable even when the debtor did not personally commit the fraud, as support for interpreting the tax statute to focus on the fraudulent act rather than the actor’s identity.
Thus, because Howell intended to evade tax on Murrin’s returns, the IRS was not bound by the three‑year limit, and the assessment remained timely.
Murrin’s Cert Petition and the Government’s Opposition
Murrin petitioned the Supreme Court for a writ of certiorari, arguing that the Third Circuit created a circuit split with the Federal Circuit’s BASR Partnership holding, which required the taxpayer’s intent to evade tax. She warned that the Third Circuit’s rule permits the government to impose “perpetual liability” on innocent taxpayers, making it difficult to reconstruct old records or prove knowledge decades later, and highlighted an equity concern: access to a more favorable forum (Tax Court vs. Court of Federal Claims) may hinge on a taxpayer’s ability to prepay the disputed tax.
The government urged the Court to deny cert, contending that § 6501(c)(1) does not require taxpayer intent and that the Third Circuit correctly applied the statute. It argued that any conflict with BASR is overstated, noting that BASR involved fraud more remote from the return‑preparation process, whereas here the preparer directly placed false entries on the return.
What the Denial Means
The Supreme Court denied certiorari, leaving the Third Circuit’s ruling undisturbed. The denial does not signal endorsement of the Third Circuit’s interpretation, but in practice it validates the IRS’s position within that circuit. Taxpayers in the Third Circuit now know that a preparer’s fraudulent intent can keep the statute of limitations open indefinitely, regardless of the taxpayer’s own knowledge or innocence.
Outside the Third Circuit, the issue remains unsettled: the Federal Circuit’s BASR precedent still stands, the Tax Court continues to follow Allen (supporting the IRS), and the government may argue that BASR applies only to fraud by parties more remote from preparation. Consequently, the ordinary three‑year window remains the default, but taxpayers cannot assume that “clean hands” protect them from IRS assessments when a preparer has acted fraudulently. The case highlights the critical need for careful selection and oversight of tax return preparers, as their misconduct can expose clients to tax liabilities that surface years or even decades later.