No Statute of Limitations Applies Where Preparer Fraudulently Prepared Client's Return

(Parker Tax Publishing September 2025)

The Third Circuit affirmed the Tax Court and held that the Code Sec. 6501(c) exception to the general three-year statute of limitations on the assessment of taxes does not apply when a third party fraudulently prepares a taxpayer's return. The court concluded that the structure of the statute focuses on the presence of "a false or fraudulent return with the intent to evade tax" and does not include any express or implied textual indication that the "intent to evade tax" is limited to the taxpayer. Murrin v. Comm'r, 2025 PTC 281 (3d Cir. 2025).

Background

For tax years 1993 through 1999, Stephanie Murrin and her husband relied on a tax return preparer, Duane Howell, to prepare their joint federal income tax returns, as well as returns for two partnerships in which Murrin was a general partner. Unbeknownst to Murrin, Howell placed false or fraudulent entries on those returns with the intent to evade tax. Murrin herself did not put any false or fraudulent information on the returns, nor did she intend to evade tax.

Generally, under Code Sec. 6501(a), the IRS is subject to a statute of limitations for assessing taxes and, under that provision, taxes must be assessed within three years of the due date of the return or the date the return is filed, whichever is later. However, Code Sec. 6501(c)(1) provides an exception which allows the IRS to assess taxes at any time when there is a false or fraudulent return with the intent to evade tax. In such cases, the IRS can assess the tax at any time. The question the statute does not answer, however, is whose "intent" is required for this exception to apply.

Murrin timely filed her tax returns for years 1993-1999 and the IRS did not discover Howell's fraudulent entries until well after the expiration of the three-year statute of limitations. In 2019 the IRS issued Murrin a notice of deficiency for the years at issue, premised on the Code Sec. 6501(c) fraud exception to the three-year statute of limitations. The notice determined deficiencies and accuracy-related penalties under Code Sec. 6662 for all of the years at issue.

Murrin disagreed that she was liable for the preparer's fraudulent entries. She took her case to the Tax Court, arguing that only the taxpayer's intent matters and since she did not intend to evade her tax obligations, she did not owe any of the taxes and penalties assessed by the IRS and the exception in Code Sec. 6501(c)(1) did not apply. In Murrin v. Comm'r, T.C. Memo. 2024-10, the Tax Court cited its decision in Allen v. Comm'r, 128 T.C. 37 (2007) in concluding that the three-year statute of limitations was suspended indefinitely because Howell filed a false or fraudulent return with an intent to evade tax. In Allen, the Tax Court held that the Code Sec. 6501(c)(1) exception to the statute of limitations encompasses a situation where a tax return preparer prepares a false or fraudulent return with the intent to evade tax.

Murrin appealed to the Third Circuit where she put forth several arguments. First, she argued that because the tax evaded is that owed by the taxpayer, the plainest reading of "intent to evade tax" must refer to a taxpayer's conduct. Any other reading, she said, would unnaturally interpret the statute contrary to any commonsense interpretations of it. Murrin contended that the plainest reading of Code Sec. 6501(c)(1) is that the statute refers to the intent of the person with the legal duty to file the tax return and pay the tax: the taxpayer. Second, Murrin contended that because Code Sec. 6501(a) explains that the "return" at issue is the taxpayer's, the fraudulent intent referenced in Code Sec. 6501(c)(1) is by implication limited to fraud by the taxpayer. Finally, Murrin argued that the Tax Court's interpretation focused only on the "false or fraudulent return" and thus rendered "intent to evade tax" superfluous.

Analysis

The Third Circuit affirmed the Tax Court and held that the Code Sec. 6501(c) exception to the general three-year statute of limitations on the assessment of taxes not only applies when a taxpayer fraudulently prepares his or her own return, but also when a third party fraudulently prepares a taxpayer's return.

First, the court said, the plain and ordinary meaning of the phrase "intent to evade tax" reveals no taxpayer-only limitation. The court looked at statutory language and found that neither "intent" nor "to evade" limit the phrase "intent to evade tax" to a taxpayer because nothing about either term is restricted to certain individuals.

Second, the court noted Congress's decision to use the passive voice in Code Sec. 6501(c)(1) further showed the court that the statute does not depend on a taxpayer's intent. Congress, the court observed, drafted Code Sec. 6501(c)(1) by focusing on an event that occurs without respect to a specific actor, and therefore without respect to any specific actor's intent or culpability. By wording the statute the way it did, without listing who must intend to evade tax, the court found that Congress was agnostic about who was evading the tax.

Further, the court said, the structure of the statute focuses on the presence of "a false or fraudulent return with the intent to evade tax." An "intent to evade tax," the court said, must attach to the "false or fraudulent return." The court found that neither requirement includes any indication that the taxpayer must be the actor who intends to evade tax and the plain and ordinary meaning of the phrase "intent to evade tax" revealed no taxpayer-only limitation to the court.

The court found Murrin's first argument - that the plainest reading of "intent to evade tax" must refer to a taxpayer's conduct - to be a fair one. Obviously, the court said, Code Sec. 6501(c)(1) applies when a taxpayer intends to evade tax. But the plainest and most straightforward reading of Code Sec. 6501(c)(1), the court concluded, is that it simply requires an "intent to evade tax" attached to a "false or fraudulent return," and whether a taxpayer, accountant, lawyer, or tax preparer displayed such intent is beside the point.

With respect to Murrin's second argument that the fraudulent intent referenced in Code Sec. 6501(c)(1) is by implication limited to fraud by the taxpayer, the court disagreed and said that the specification of whose tax or return is at issue does not suggest, much less dictate, who had to intend to evade tax. Moreover, the court noted, Congress expressly used the term "taxpayer" in Code Sec. 6501(a) to define what return is at issue but declined to use the same qualifier in Code Sec. 6501(c)(1).

The court also rejected Murrin's third argument - that the Tax Court's interpretation focused only on the "false or fraudulent return" and thus rendered the "intent to evade tax" part of Code Sec. 6501(c)(1) superfluous. According to the court, its interpretation of Code Sec. 6501(c)(1) rendered nothing superfluous in the statute. As the Tax Court correctly explained, the court said, the obvious construction of the statutory text is that the intent to evade tax must be present in a false or fraudulent return, irrespective of who possesses that intent.

Finally, the Third Circuit found that the Supreme Court's analysis of Congress's use of passive voice confirmed its reading of Code Sec. 6501(c)(1). In Bartenwerfer v. Buckley, 598 U.S. 69 (2023), the Supreme Court analyzed a provision of the Bankruptcy Code specifying that debt is not dischargeable when money is "obtained by . . .fraud." The Court concluded, based on the use of the passive voice in the statute, that the debt had to be the result of someone's fraud, but not necessarily that of the debtor.

For a discussion of the statute of limitations on the assessment of taxes relating to false or fraudulent returns, see Parker Tax ¶260,130.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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