Supreme Court Denies Review — Third Circuit Ruling Lets IRS Pursue Tax Assessments Indefinitely For Preparer Fraud

The Supreme Court declined to review Murrin v. Commissioner, leaving in place a Third Circuit decision that makes it easier for the Internal Revenue Service to assess unpaid tax long after the usual statute of limitations has expired when a tax return preparer acted fraudulently. Under the Third Circuit’s reading of the statute, the IRS may assess additional tax at any time if a return is "false or fraudulent with the intent to evade tax," even when the taxpayer had no knowledge of the preparer’s misconduct.

Background

Petitioner Stephanie Murrin filed joint returns with her then-husband for the tax years 1993–1999. Their preparer, Duane Howell, allegedly inserted fraudulent entries on those returns and later pleaded guilty in 2007 to charges arising from a broader return-preparation fraud scheme. In 2019 the IRS issued a notice of deficiency to Murrin asserting more than $328,000 in tax, penalties, and interest; by that time accumulated interest alone had exceeded $250,000.

Legal Issue

Tax law normally gives the IRS three years after a return is filed to assess additional tax. But section 6501(c)(1) creates an exception: if a return is "false or fraudulent with the intent to evade tax," there is no time limit. The central dispute in Murrin was whether that required the taxpayer’s own intent, or whether intent supplied by a third-party preparer who caused the return to be fraudulent is sufficient to keep the assessment window open indefinitely.

Court Decisions

The Tax Court followed its precedent in Allen v. Commissioner, holding that a preparer’s intent can trigger the exception. The Third Circuit affirmed, concluding that the statutory phrase concerns the return itself and not necessarily the person who filed it. As the court put it:

"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."

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.getty

The Third Circuit relied in part on statutory text, Congress’s drafting patterns (noting Congress knows how to single out taxpayer conduct when it wants to), and the Supreme Court’s decision in Bartenwerfer v. Buckley (2023), which recognized that some legal consequences of fraud can attach to a wrongful event even when the victim did not personally commit the fraud.

Conflict With Other Courts

Not all appellate courts agree. The Federal Circuit in BASR Partnership v. United States (2015) held that section 6501(c)(1) applies only when the taxpayer — not a third party — acted with intent to evade tax. Murrin argued that the Third Circuit’s holding created a circuit split that would merit Supreme Court review. The government told the high court the Third Circuit was correct and asked the Court to pass; the Supreme Court denied certiorari, leaving the split unresolved.

Practical Consequences

Because the Supreme Court denied review, the Third Circuit’s rule now governs taxpayers in that circuit: if a return preparer directly inserts fraudulent items with the intent to evade tax, the IRS can assess at any time. Elsewhere in the country the law remains mixed—Tax Court often follows Allen, the Federal Circuit follows BASR, and other regional circuits may reach different conclusions.

What Taxpayers Should Know

- A taxpayer’s lack of knowledge about a preparer’s fraud does not necessarily shield them from late assessments in the Third Circuit. - Fraud penalties (which are separate) generally still depend on taxpayer culpability; the decision discussed here affects assessment timing, not automatic imposition of fraud penalties on taxpayers. - Carefully vet tax preparers: ask about credentials, check PTINs, verify professional licenses, get copies of all work papers and returns, and consider using reputable firms or reputable software when possible.

Case: Stephanie Murrin, Petitioner v. Commissioner of Internal Revenue. This article summarizes public filings and court opinions related to the case and the denial of certiorari.