The Supreme Court declined to hear Murrin v. Commissioner, leaving a Third Circuit ruling in place that significantly expands when the IRS can go back and assess unpaid taxes—even decades after a return was filed—when the person who prepared the return committed fraud. That’s the case, according to the Third Circuit, even if the taxpayer didn’t know anything about the fraud.
Background
For Stephanie Murrin, the immediate consequence is that IRS assessments tied to returns she filed years ago remain timely, despite being made roughly two decades after the returns were filed. According to her petition to the Supreme Court, Murrin faces more than $328,000 in tax, penalties, and interest (the interest that had grown to more than $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 1993 through 1999. During those years, the Murrins used Duane Howell to prepare their joint federal income tax returns and returns for two partnerships in which Murrin was a general partner. Howell, whose CPA license had been suspended during the years he prepared the Murrins’ returns, had previously been convicted in New York federal court for preparing fraudulent returns for other taxpayers (according to the petition, the Murrins did not know about the conviction). He later pleaded guilty in 2007 to federal charges arising from a broader return-preparation fraud scheme.
The parties agreed that Howell included false or fraudulent entries on the returns, including claimed “office supplies and expenses” deductions for partnerships that, according to the government, did not actually conduct business or spend money on office supplies. The government also alleged that Howell intended to conceal his involvement by omitting his name and signature from the preparer line, listing different entities as preparer from year to year, using different post office boxes as business addresses on partnership returns, and causing partnership returns to be mailed to different IRS service centers.
Still, the IRS issued a notice of deficiency to Murrin in 2019, long after the ordinary three-year period had expired. Murrin petitioned the Tax Court, arguing that section 6501(a) barred the assessment and the deadline has passed.
The Law and the Dispute
Tax law generally gives the IRS three years after a return is filed to assess any additional tax owed. That deadline is important, since after a period of time has passed, both the government and taxpayers are expected to move on. But there’s a significant exception. When a return is “false or fraudulent with the intent to evade tax,” the IRS can assess additional tax at any time, meaning that no statute of limitations runs and no deadline applies.
The taxpayer and the government agree on that point. The problem is that the statute doesn’t make clear whose intent counts.
Murrin argued that fraud exception applies only when the taxpayer acted with intent to evade tax. The IRS argued that the clock never started ticking on the statute of limitations because the returns were fraudulent and Howell had acted with the required intent. The government did not allege that Murrin put false information on the returns or intended to evade tax—it argued that it didn’t need to. By law, according to the government, it doesn’t matter whether the intent belonged to the taxpayer or someone else, including the preparer.
The Tax Court agreed with the IRS, following its earlier decision in Allen v. Commissioner, which held that section 6501(c)(1) can apply when a return preparer, rather than the taxpayer, acts with intent to evade tax.
On appeal, the Third Circuit also sided with the government. It found that the statute doesn’t require the taxpayer’s intent to evade tax. It simply requires that there be intent to evade tax. And if that intent is attached to the return, there is no deadline. In this case, 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 law refers to “a false or fraudulent return with the intent to evade tax” but doesn’t specify who must have that intent. It rejected Murrin’s argument that the statute points to the taxpayer because the return is the taxpayer’s return and the tax is the taxpayer’s tax.
Instead, the court concluded that the phrase “intent to evade tax” attaches to the fraudulent return and not necessarily to the taxpayer. A preparer who puts fraudulent items on a return can supply the required intent because that intent is directly connected to the return.
The court also looked at tax laws, generally, noting that Congress knows how to refer expressly to taxpayer conduct when it wants to do so, and that other Code provisions dealing with penalties and fraud use different language. The court found it reasonable that Congress could require taxpayer intent for fraud penalties (here, there were none) while still allowing the IRS to collect the correct tax at any time when a fraudulently prepared return resulted in an underpayment.
The Third Circuit also found support in the Supreme Court’s 2023 decision in Bartenwerfer v. Buckley, a bankruptcy case holding that a debt resulting from fraud could be nondischargeable even when the debtor herself did not commit the fraud. The Third Circuit saw Bartenwerfer as support for the idea that Congress can write laws focused on an event like a fraudulent return rather than on the identity of the person who caused it.
Murrin’s Cert Petition
Following the loss at the Third Circuit, Murrin filed a petition for writ of certiorari with the Supreme Court. Parties do that when seeking a discretionary review of a lower court decision.
If the Supreme Court decides to hear a matter, it’s called a grant of certiorari (or granted cert)—by practice, at least four justices must vote to hear the case to be granted cert. Usually, cert is granted in a case of considerable importance or one involving a split. A split happens when courts disagree on a matter of federal law, reaching different conclusions about its application—that’s what Murrin argued happened here.
In 2015, the Federal Circuit held in BASR Partnership v. United States that section 6501(c)(1) applies only when the taxpayer, and not a third party, acted with intent to evade tax. Murrin argued that the Third Circuit had created a split by expressly departing from BASR. And, she claimed that the Third Circuit’s rule allows the government to impose what amounts to perpetual liability on taxpayers who had no reason to know their preparer had committed fraud.
That concern is especially serious, she argued in her petition, because time makes it harder or impossible to reconstruct old facts, locate records, or prove what a taxpayer knew decades earlier.
Murrin also highlighted an equity issue. You can bring tax suits in Tax Court or the Court of Federal Claims.
Tax Court is a federal court that hears disputes between taxpayers and the IRS, most commonly before the taxpayer has paid the disputed amount. That makes it an important forum for taxpayers who receive a notice of deficiency and want judicial review without first paying the tax and then suing in federal district court for a refund. (See “T is for Tax Court.”)
Taxpayers who can afford to pay the disputed tax first may sue for a refund in the Court of Federal Claims and obtain Federal Circuit review. Taxpayers who cannot prepay generally must litigate in Tax Court and then appeal to the regional circuit where they reside. In Murrin’s view, that creates a system in which access to the more favorable limitations rule may depend on a taxpayer’s ability to prepay.
The Government’s Opposition
The government urged the Supreme Court to pass on the case, arguing that the Third Circuit got it right.
According to the government, section 6501(c)(1) does not say that the taxpayer must intend to evade tax. It requires a false or fraudulent return with intent to evade tax, and that requirement was satisfied by Howell’s conduct. And, that is in keeping with the purpose of the statute, the government claimed, since fraud cases are harder to investigate than routine audit cases. That difficulty exists, the government argued, whether the fraud is committed by the taxpayer or by a return preparer who causes the return to understate tax.
The government also claimed that any conflict with BASR was overstated. Even so, it distinguished BASR, arguing that BASR involved fraud more distant from the preparation and filing of the return, while Murrin involved a preparer who directly placed false entries on the returns. The Federal Circuit, according to the government, 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 was not inclined to step in, and instead denied cert. The Supreme Court’s denial does not mean that the Court agrees with the Third Circuit. But in practical terms, Murrin is a significant win for the IRS.
For taxpayers in the Third Circuit, it’s clear that taxpayer intent is not required to keep the statute of limitations open when a fraudulent return was prepared with intent to evade tax. A preparer’s intent can be enough, at least where that preparer was directly involved in preparing the taxpayer’s return.
For taxpayers in other places, the issue remains somewhat unsettled. BASR remains Federal Circuit precedent, 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.
That means that the ordinary three-year window for assessing tax remains the default, but in cases involving preparer fraud, taxpayers cannot assume that their own “clean hands” will be enough to keep the IRS away. It’s a sobering thought. And it highlights the importance of choosing tax preparers carefully. Taxpayers aren’t automatically treated as fraudsters because of a preparer’s misconduct, and fraud penalties are still generally dependent on the taxpayer. But Murrin shows that the consequences of preparer fraud can still follow taxpayers who did not personally intend to evade tax—for years or, as here, decades later.
The case is Stephanie Murrin, Petitioner v. Commissioner of Internal Revenue.
