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.

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........

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