The Supreme Court’s decision Monday to not review the Murrin Case, as the Plaintiff’s Attorney had requested, lets stand a Third Circuit Court holding that the IRS has an unlimited period to assess tax when a fraudulent return is filed with the intent to evade tax. This is regardless of whether the intent was that of the taxpayer or the taxpayer’s return preparer.
The basics of the case are as follows…
Stephanie Murrin was assessed taxes and penalties in 2019 based on returns she filed from 1993 to 1999 that were completed by a tax preparer. Her attorneys said in a petition that she now owes $328,000, including interest on the assessment.
Murrin challenged the IRS’s determination in Tax Court, claiming that the assessment was barred by the three-year statute of limitations. The IRS typically has three years from the date a return is filed to assess tax without seeking judicial approval.
But under Sec. 6501(c)(1), the IRS can assess tax at any time when a false or fraudulent return is filed with the intent to evade tax. The Tax Court sided with the IRS, stating that it had no time constraints.
Murrin appealed the Tax Court’s decision to the Third Circuit, arguing there that the unlimited extension of time did not apply because, although her tax return preparer acted with the intent to evade tax, she did not.
The Third Circuit affirmed the Tax Court’s decision, holding that the extended statute of limitations did not require the taxpayer’s intent to evade tax to apply. This allowed the IRS to assess tax and penalties related to Murrin’s 1993 through 1999 returns almost 20 years after they were filed.
The government said in its brief to the Supreme Court that nothing, “implicitly indicates that the intent to evade tax must belong to the taxpayer.” Congress allowed the unlimited period because “fraud cases ordinarily are more difficult to investigate than routine audits,” citing Badaracco, 464 U.S. 386 (1984).
“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 Third Circuit stated in its opinion. “Because the statute is agnostic (neutral) about who must intend to evade tax, we hold that taxpayer intent is not required.”
The result of allowing assessment without time limits “is devastating for taxpayers who, due to the passage of time, not any fault of their own, cannot prove the accuracy of their tax returns or the fraud (or lack thereof) by their return preparer,” Murrin’s attorneys said in the petition. “Those taxpayers are left to defend their tax returns when the government suddenly appears unannounced, out of nowhere, asserting massive tax liabilities from decades earlier.”
Let me leave you with this…
What’s truly scary about this is the “intent to evade tax” standard. Please allow me to explain.
In the past week, three potential new clients approached me with returns that had significant problems. Three in one week.
Believe it or not, that’s not a new record.
In each of these cases, the client was unaware that their tax preparer had made an error on their returns. They just had a feeling and wanted someone else to look at it.
If these returns were audited, and the auditor was extremely aggressive, is there anything that would stop them from claiming an “intent to evade tax”?
What’s the standard? How is intent proven beyond a reasonable doubt?
By definition, many of these cases could be subjective in nature. The level of professionalism I’m seeing in income tax work is the lowest I’ve encountered in my 37 years of practice.
I’ve said it before, and I’ll say it again. The person who completes your return is very important. Why?
Because if you get audited, ignorance of the law is no defense. They could go back thirty or forty years if they wanted, and claim there was an “intent to evade tax.”
And when you looked at the auditor and said, “I had no idea, nor did I have any intent,” what do you think that auditor would do? They’d probably just laugh as they hit you with a 100% penalty and interest for all those years.
Don’t kid yourselves. Government overreach is real. This could happen to you.
Many mistakenly think the IRS always applies the law correctly, that they are there to do the right thing.
If any of you have ever been in my conference room you’ve seen my tax library, which includes Master Tax Guides dating back forty years. If I’m referred an audit case, because
I haven’t had a return audited at the Federal Level in the last twelve years, the first thing I do is pull out the Master Tax Guide for the year being examined. Why?
Because normally, I’ll need to explain the tax law to the auditor trying to enforce it. That’s usually easier than straightening out a matter of law with their audit supervisor.
But that’s not even the really ugly problem. What happens when you get an auditor who’s “Bucking for Archbishop?”
Please understand that auditors are normally promoted based on their collections. The one who collects the most inside an audit group usually gets the next promotion.
One of the first audits I handled, back when dinosaurs still roamed the earth, was a Mom and Pop Grocery Store in Aurora. The auditor proved that the couple had not claimed $1,236 in income on their return.
The clients, aged 67 and 65, were facing jail time based on the auditor’s recommendation. Think about doing 12 months in the slammer over a lousy dozen Franklins.
I spoke to the supervisor and stopped the nonsense, but this was clearly a case of an auditor trying to get promoted.
Don’t think for a heartbeat that this couldn’t happen to you. Imagine a full year of three hots and a cot while you’re the next contestant on that fun-filled family gameshow named, “Don’t Drop The Soap.”
If you have any questions at all about your accounting and tax work, I’m waiting for your call.
We’re all going to get through this. Let’s get through it together…
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, Accounting and Tax Work, Tax Planning, or Tax Representation, you have but to ask. I’m here and I remain,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
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