Supreme Court Leaves IRS Free To Chase Taxpayers Forever Over Preparer Fraud

The Supreme Court declined to hear Stephanie Murrin’s challenge, leaving a Third Circuit ruling in place. The decision means the IRS can assess unpaid taxes well beyond the normal three-year deadline when a return was prepared using fraud intended to evade tax

The IRS didn’t issue its notice of deficiency within the usual three-year window. It waited roughly two decades.

For Stephanie Murrin, the timing wasn’t just frustrating—it reshaped what “done” means in tax disputes. The notice came in 2019 for joint returns she and her then-husband, Stephen Murrin, filed for 1993 through 1999. The IRS tied the assessment to returns prepared by a tax preparer whose own misconduct had already been established elsewhere.

The Supreme Court declined to hear Murrin v. Commissioner, leaving the Third Circuit’s ruling in place. Under that interpretation. when a return was false or fraudulent with the intent to evade tax—and that intent is shown through the preparer who built the fraudulent filing—the IRS can go back and assess additional tax without being bound by the ordinary statute of limitations.

That has immediate consequences for Murrin. In her petition, she said she faces more than $328,000 in tax, penalties, and interest. She also said the interest had grown to more than $250,000 by the time the IRS issued the notice of deficiency.

Murrin was a New Jersey taxpayer who filed joint returns for 1993 through 1999 with Stephen Murrin. For 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’s record, according to Murrin’s petition, was already disqualifying. Howell’s CPA license had been suspended during the years he prepared the Murrins’ returns. He had previously been convicted in New York federal court for preparing fraudulent returns for other taxpayers. though Murrin said in the petition that she did not know about that conviction.

Howell later pleaded guilty in 2007 to federal charges arising from a broader return-preparation fraud scheme.

The parties agreed, in the dispute, that Howell included false or fraudulent entries on the returns. Those included 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 Howell intended to conceal his involvement. It pointed to how he omitted his name and signature from the preparer line. listed different entities as preparer from year to year. used different post office boxes as business addresses on partnership returns. and caused partnership returns to be mailed to different IRS service centers.

Even with the alleged lack of knowledge on the taxpayer’s side, the legal question became: whose intent matters for the fraud exception that keeps the IRS from being locked out by time.

Tax law generally gives the IRS three years after a return is filed to assess additional tax owed. But a key exception applies when a return is “false or fraudulent with the intent to evade tax.” In that situation, the IRS can assess additional tax at any time—meaning no statute of limitations runs.

The taxpayer and the government agreed on that point. Their disagreement was narrower and harder: the statute doesn’t make clear whose intent counts.

Murrin argued that the fraud exception should apply only when the taxpayer acted with intent to evade tax. The IRS argued differently. It said the statute of limitations never started ticking because the returns were fraudulent and Howell had acted with the required intent.

Crucially, the government did not allege that Murrin put false information on the returns or intended to evade tax. The government’s position was that it didn’t need to prove that—because, by law, the intent doesn’t have to be attributed to the taxpayer.

The Tax Court agreed with the IRS. It followed its earlier decision in Allen v. Commissioner, holding 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 concluded that the statute doesn’t require the taxpayer’s intent to evade tax. Instead, the court said it requires intent to evade tax connected to the return. In Murrin’s case. because Howell intended to evade tax on her returns. the Third Circuit held the IRS was not bound by the ordinary three-year statute of limitations.

The Third Circuit acknowledged the human reality of Murrin’s frustration while holding itself to the statute. It 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. ” and added. “But we are bound by the statute.”.

The Third Circuit’s reasoning turned on the wording of the provision and how Congress drafts these laws. The court said 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, it concluded that the phrase “intent to evade tax” attaches to the fraudulent return, 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 to other parts of the tax code. saying Congress knows how to refer expressly to taxpayer conduct when it wants to do so. It said other Code provisions dealing with penalties and fraud use different language. The Third Circuit 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.

It also drew support from 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 treated that as support for the idea that Congress can write laws focused on the event. such as a fraudulent return. rather than the identity of the person who caused it.

After losing in the Third Circuit, Murrin asked the Supreme Court for certiorari. A petition for writ of certiorari is how parties seek discretionary review of a lower court decision. If the Supreme Court decides to hear a matter. it is called a grant of certiorari (or granted cert). and by practice at least four justices must vote to hear the case.

Murrin argued her case met that threshold because courts had disagreed. She pointed to a split: 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.

In her petition, Murrin said the Third Circuit had created a split by expressly departing from BASR. She argued 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.

Her petition said this concern becomes more severe as time passes. She argued that time makes it harder or impossible to reconstruct old facts, locate records, or prove what a taxpayer knew decades earlier.

Murrin also raised what she described as an equity issue tied to where lawsuits can be brought. She explained that tax suits can be filed 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. she argued. makes Tax Court 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. She referenced “T is for Tax Court.”.

In her view. 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. Murrin said that. in her view. creates a system in which access to the more favorable limitations rule may depend on the ability to prepay.

The government urged the Supreme Court to pass on the case. It argued the Third Circuit got it right and that section 6501(c)(1) does not say the taxpayer must intend to evade tax. The government said the statute requires a false or fraudulent return with intent to evade tax—and that requirement was satisfied by Howell’s conduct.

The government also argued the result matches the statute’s purpose. It said fraud cases are harder to investigate than routine audit cases, and that this difficulty exists whether the fraud is committed by the taxpayer or by a return preparer who causes the return to understate tax.

The government further said any conflict with BASR was overstated. Even so. it distinguished BASR by 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. it argued. left open whether the intent of someone more closely connected to the return-preparation process could trigger section 6501(c)(1).

When the Supreme Court denied cert, it did not signal agreement with the Third Circuit. A denial of cert does not mean the Supreme Court agrees with the lower court. But for Murrin, the practical effect is what matters.

For taxpayers in the Third Circuit. it is now clear—under this reading of section 6501(c)(1)—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 when that preparer was directly involved in preparing the taxpayer’s return.

For taxpayers in other places, the question remains unsettled because BASR remains Federal Circuit precedent. The government can 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.

So the ordinary three-year window remains the default. But in cases involving preparer fraud. the takeaway from Murrin’s case is stark: taxpayers cannot assume their “clean hands” will keep the IRS away—even when the wrongdoing traces back to someone else’s intent and even when years. or decades. have passed.

That is the kind of legal certainty that comes with a human cost: when the paperwork was prepared by someone later found to be committing fraud, the consequences can still land on the taxpayer long after the ordinary clock would have run out.

Supreme Court IRS statute of limitations tax fraud return preparer fraud Murrin v. Commissioner Third Circuit Allen v. Commissioner BASR Partnership v. United States Bartenwerfer v. Buckley