Supreme Court Declines Review, Allowing IRS Unlimited Time to Pursue Taxpayers for Preparer Fraud[/TITLE>

Supreme Court Declines Review, Allowing IRS Unlimited Time to Pursue Taxpayers for Preparer Fraud[/TITLE>

The Supreme Court left a Third Circuit ruling in place that significantly expands when the IRS can go back and assess unpaid taxes, meaning that when there’s fraud, the agency can chase you forever.

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The Supreme Court declined to hear Murrin v. Commissioner, leaving intact a Third Circuit ruling that significantly broadens the IRS’s authority to assess unpaid taxes decades after a return was filed when a return preparer committed fraud. Notably, this applies even if the taxpayer was unaware of the preparer’s misconduct.

The Supreme Court left a Third Circuit ruling in place that significantly expands when the IRS can go back and assess unpaid taxes, meaning that when there’s fraud, the agency can chase you forever.

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Background

The immediate consequence for Stephanie Murrin is that IRS assessments tied to returns filed years ago remain timely, despite being issued roughly two decades later. According to her petition to the Supreme Court, Murrin faces more than $328,000 in tax, penalties, and interest, with interest alone exceeding $250,000 by the time the IRS issued the notice of deficiency.

Murrin, a New Jersey taxpayer, filed joint returns with her then-husband, Stephen Murrin, for tax years 1993 through 1999. During that period, the couple engaged Duane Howell to prepare their joint federal income tax returns and returns for two partnerships in which Murrin was a general partner. Howell’s CPA license had been suspended during the years he prepared the Murrins’ returns, and he had previously been convicted in New York federal court for preparing fraudulent returns for other clients—a fact the Murrins allegedly did not know. He later pleaded guilty in 2007 to federal charges stemming from a broader return-preparation fraud scheme.

The parties stipulated that Howell included false or fraudulent entries on the returns, including fabricated “office supplies and expenses” deductions for partnerships that, according to the government, conducted no business and incurred no such expenses. The government also alleged that Howell attempted to conceal his involvement by omitting his name and signature from the preparer line, listing different entities as preparer from year to year, using varying post office boxes as business addresses on partnership returns, and directing partnership returns to different IRS service centers.

Despite these facts, the IRS issued a notice of deficiency to Murrin in 2019, well after the standard three-year assessment period had expired. Murrin petitioned the Tax Court, arguing that section 6501(a) barred the assessment because the statutory deadline had passed.

The Law and the Dispute

Tax law generally provides the IRS a three-year window after a return is filed to assess additional tax. This limitation period is fundamental: after a reasonable time, both the government and taxpayers are expected to achieve finality. However, a critical exception exists. When a return is “false or fraudulent with the intent to evade tax,” the IRS may assess additional tax at any time—no statute of limitations applies.

The parties agree on the existence of this exception. The dispute centers on whose intent satisfies the statutory requirement.

Murrin contended that the fraud exception applies only when the taxpayer personally acted with intent to evade tax. The IRS countered that the limitations period never begins to run because the returns themselves were fraudulent and Howell acted with the requisite intent. The government did not allege that Murrin supplied false information or intended to evade tax; rather, it argued that the identity of the actor is irrelevant. Under the government’s reading, the statute requires only that a return be false or fraudulent with intent to evade tax, regardless of who harbored that intent.

The Tax Court sided with the IRS, following its prior decision in Allen v. Commissioner, which held that section 6501(c)(1) applies when a return preparer, rather than the taxpayer, acts with intent to evade tax.

On appeal, the Third Circuit affirmed. It found that the statute does not require the taxpayer’s intent to evade tax; it requires only that there be intent to evade tax attached to the return. Because Howell intended to evade tax on Murrin’s returns, the court held the IRS was not bound by the ordinary three-year statute of limitations.

“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,” the Third Circuit wrote. “But we are bound by the statute.”

The Third Circuit’s Reasoning

The court reasoned that the statutory language—”a false or fraudulent return with the intent to evade tax”—does not specify who must possess that intent. It rejected Murrin’s argument that the statute implicitly points to the taxpayer because the return and the tax liability belong to the taxpayer.

Instead, the court concluded that the phrase “intent to evade tax” modifies the fraudulent return itself, not necessarily the taxpayer. A preparer who places fraudulent items on a return can supply the required intent because that intent is directly connected to the return.

The court also examined the broader tax code, noting that Congress knows how to refer expressly to taxpayer conduct when it intends to do so, and that other provisions addressing penalties and fraud employ different language. The court found it reasonable that Congress could require taxpayer intent for fraud penalties—which were not at issue here—while still permitting the IRS to collect the correct tax at any time when a fraudulently prepared return resulted in an underpayment.

The Third Circuit further cited support from the Supreme Court’s 2023 decision in Bartenwerfer v. Buckley, a bankruptcy case holding that a debt arising from fraud could be nondischargeable even when the debtor did not personally commit the fraud. The Third Circuit viewed Bartenwerfer as reinforcing the principle that Congress can draft laws focused on the character of an event—such as a fraudulent return—rather than on the identity of the person who caused it.

Murrin’s Certiorari Petition

After losing in the Third Circuit, Murrin filed a petition for a writ of certiorari with the Supreme Court, seeking discretionary review. Certiorari is typically granted only in cases of significant importance or where a circuit split exists—meaning federal appellate courts have reached conflicting conclusions on the same legal question. At least four justices must vote to grant review.

Murrin argued that a split existed with the Federal Circuit’s 2015 decision in BASR Partnership v. United States, which held that section 6501(c)(1) applies only when the taxpayer, not a third party, acted with intent to evade tax. She contended that the Third Circuit expressly departed from BASR, creating a conflict.

Murrin further warned that the Third Circuit’s rule exposes taxpayers to perpetual liability for preparer fraud they had no reason to know about. That concern is especially acute, she argued, because the passage of time makes it increasingly difficult or impossible to reconstruct facts, locate records, or prove what a taxpayer knew decades earlier.

She also raised an equity concern regarding forum access. Taxpayers may challenge deficiencies in the U.S. Tax Court without prepaying the disputed amount, while those who can afford to pay first may sue for a refund in the Court of Federal Claims, with appeals going to the Federal Circuit. Because the Federal Circuit follows the more taxpayer-friendly BASR rule, Murrin argued that access to the favorable limitations interpretation may effectively depend on a taxpayer’s ability to prepay.

The Government’s Opposition

The government urged the Supreme Court to deny review, arguing that the Third Circuit correctly interpreted the statute.

According to the government, section 6501(c)(1) does not condition the fraud exception on the taxpayer’s intent. It requires only a false or fraudulent return with intent to evade tax—a requirement satisfied by Howell’s conduct. The government maintained that this reading aligns with the statute’s purpose, because fraud cases are inherently more difficult to investigate than routine audits, regardless of whether the fraud was committed by the taxpayer or by a preparer who caused the return to understate tax.

The government also contended that any conflict with BASR was overstated. It distinguished BASR on the grounds that the fraud there was more remote from the preparation and filing of the return, whereas Howell directly placed false entries on the Murrins’ returns. The Federal Circuit, the government noted, left open whether the intent of someone more closely connected to the return-preparation process could trigger section 6501(c)(1).

What the Denial Means

The Supreme Court’s denial of certiorari does not signal agreement with the Third Circuit’s reasoning. However, in practical terms, the decision represents a significant victory for the IRS.

For taxpayers in the Third Circuit, it is now settled that taxpayer intent is not required to keep the statute of limitations open when a return was fraudulently prepared with intent to evade tax. A preparer’s intent can suffice, at least where that preparer was directly involved in preparing the return.

For taxpayers elsewhere, the issue remains somewhat unsettled. BASR remains binding precedent in the Federal Circuit, and the government may continue to argue that BASR is limited to fraud by parties more remote from the return-preparation process. The Tax Court, meanwhile, has long followed Allen, which supports the IRS’s position.

The ordinary three-year assessment window remains the default rule. But in cases involving preparer fraud, taxpayers cannot assume that their own “clean hands” will shield them from IRS action years—or decades—later. The decision underscores the critical importance of selecting tax preparers carefully. Taxpayers are not automatically treated as fraudsters due to a preparer’s misconduct, and fraud penalties generally still depend on the taxpayer’s own conduct. Yet Murrin demonstrates that the consequences of preparer fraud can follow taxpayers who did not personally intend to evade tax for years, or even decades, after the fact.

The case is Stephanie Murrin, Petitioner v. Commissioner of Internal Revenue.

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