The Supreme Court has left in place a ruling that gives the IRS broad power to assess tax long after the usual deadline when a return was fraudulent, even if the taxpayer did not know about the fraud. For taxpayers caught in that rule, the liability can stretch on for decades.
That is the result in Murrin v. Commissioner, where the court declined to hear the case and allowed the Third Circuit’s decision to stand. The dispute centers on whether the fraud exception to the normal three-year assessment period applies only when the taxpayer acted with intent to evade tax, or whether a preparer’s fraud is enough on its own.
Why the IRS Still Had Time
Stephanie Murrin faced more than $328,000 in tax, penalties, and interest tied to returns filed years earlier, with interest alone growing to more than $250,000 by the time the IRS issued the notice of deficiency. The agency sent that notice in 2019, roughly two decades after the returns at issue were filed.
Murrin and her then-husband filed joint returns for 1993 through 1999 and used Duane Howell to prepare those returns, along with partnership returns for two partnerships in which she was a general partner. Howell had previously lost his CPA license during the years he prepared the returns and had been convicted in New York federal court for fraudulent return preparation involving other taxpayers.
The parties agreed Howell included false entries, including claimed deductions for “office supplies and expenses” that the government said were not real. The government also said he tried to hide his role by leaving his name off the preparer line, changing preparer details from year to year, and using different post office boxes and IRS service centers.
The Statute Of Limitations Fight
Tax law generally gives the IRS three years to assess additional tax after a return is filed. But the law has a fraud exception: if a return is “false or fraudulent with the intent to evade tax,” the IRS may assess tax at any time.
Murrin argued that the exception should apply only when the taxpayer herself intended to evade tax. The IRS took the opposite view and said the statute only requires fraudulent intent somewhere on the return, including from a preparer.
The Tax Court sided with the IRS, relying on its earlier decision in Allen v. Commissioner. The Third Circuit did the same, saying the statute does not say whose intent matters and that Howell’s intent was enough because it was tied directly to the fraudulent returns.
The court wrote, “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.”
Why The Third Circuit Said The Clock Never Ran Out
The Third Circuit reasoned that Congress used language focused on a fraudulent return, not on a particular taxpayer’s state of mind. It also said other parts of the tax code show that Congress knows how to require taxpayer-specific intent when it wants to do so.
The panel pointed to the Supreme Court’s 2023 decision in Bartenwerfer v. Buckley as support for laws that turn on a fraudulent event rather than on who personally carried it out. In that view, a preparer’s fraud can keep the assessment period open even when the taxpayer did not know what was happening.
The Split Murrin Tried To Bring To The Supreme Court
In her cert petition, Murrin argued that the Third Circuit had created a split with the Federal Circuit’s 2015 decision in BASR Partnership v. United States. That case held that section 6501(c)(1) applies only when the taxpayer, not a third party, acted with intent to evade tax.
She also argued the Third Circuit’s rule creates a harsh result for taxpayers who had no reason to know their preparer was committing fraud. In her view, time makes it harder to find records, reconstruct facts, and prove what happened years or decades earlier.
What The Government Told The Court
The government urged the Supreme Court not to take the case and said the Third Circuit got it right. It argued that section 6501(c)(1) does not say the taxpayer must intend to evade tax, only that the return must be fraudulent with intent to evade tax.
The government also said the purpose of the exception is to let the IRS deal with fraud cases, which are harder to investigate than ordinary audits. It added that any conflict with BASR was overstated because that case involved fraud farther removed from the actual preparation and filing of the return.
What The Denial Means For Taxpayers
The Supreme Court’s refusal to hear the case does not mean it agreed with the Third Circuit, but it does leave that ruling in place. For taxpayers in the Third Circuit, a preparer’s intent can be enough to keep the assessment period open when the return was fraudulent.
Elsewhere, the law is still unsettled. The Tax Court continues to follow Allen, while the Federal Circuit’s BASR decision remains the controlling rule there, leaving different courts with different readings of the same fraud exception.
The practical lesson is simple: the ordinary three-year limit is still the default, but in cases involving return-preparer fraud, clean hands may not be enough to stop the IRS from coming back much later. The case is Stephanie Murrin, Petitioner v. Commissioner of Internal Revenue.
