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Whose fraud is it anyway?

December 4, 2024 by Kim & Rosado LLP

In Murrin v. Commissioner, T.C. Memo. 2024-10, the court followed precedent and held that the normal three-year period of limitations on assessment may remain indefinitely open on account of fraud regardless of whose fraud it is, either the taxpayer’s or the preparer’s.

Murrin involved joint individual returns and partnership returns for tax years 1993 through 1999, all prepared by a return preparer who placed false or fraudulent entries on those returns without the knowledge of the taxpayers. And the court was careful to specify that the taxpayers themselves did not intend to evade tax. And only in 2019 did the IRS issue its notice of deficiency. In petitioning the Tax Court, Ms. Murrin sought to convince the court to find a prior opinion, Allen v. Commissioner, 128 T.C. 37 (2007), wrongly decided and to urge the adoption of the contrary stance taken by the Federal Circuit in BASR Partnership v. United States, 795 F.3d 1338 (Fed. Cir. 2015). But preferring to strictly construe the statute, section 6501(c), in favor of the Government, the court accordingly held against Ms. Murrin.

The opinion generated a considerable amount of agita, with many commentators condemning the Tax Court’s reasoning as well as the IRS’s “heavy-handed” approach. See https://www.forbes.com/sites/tomcullinan/2024/02/03/the-internal-revenue-service-is-being-heavy-handed/?sh=2dfd91a23f21. Advice given to taxpayers in this boat consisted solely in paying the tax and filing a claim in the Court of Claims as a favorable venue.

To provide some perspective, however, panic or paranoia may not be called for. While this was certainly a harsh result to Ms. Murrin, for those who know from IRS internal workings, the likely comment might be, “Wow, that must have been some darn fraud.” After all, to go back over 20 years, had to take some persuasive convincing of a higher-up pezzonovante, a chore most line employees are quite loath to undertake. (Perhaps unspoken too by the Tax Court was the potential for collusion between preparers and taxpayers.)

Now, concern may be justified if the IRS views this result as a handy club regarding any initiative to aggressively pursue Employee Retention Credit fraud. See ERC. Stay tuned.

Filed Under: Tax Audit, Tax Litigation

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These articles are for informational purposes only and do not constitute legal or tax advice. These articles do not create an attorney-client relationship. Anyone viewing these articles should not act upon this information without seeking professional counsel. These articles may be considered attorney advertising.

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