Tax Court Again Declines to Reconsider Its Holding that the Preparer's Fraud without the Taxpayer's Fraud Invokes Unlimited Statute of Limitations (1/25/24; 2/5/24)

Long-time readers of this blog and the parallel blog Federal Tax Crimes may recall that I have had several postings on the issue of whether § 6501(c) unlimited statute of limitations for fraudulent returns requires (i) the taxpayer's fraud or (ii) may be a third party's fraud that is incorporated in the taxpayer's return without the taxpayer's fraud. The classic case is a preparer's fraud, but could also include fraud on an information return (such as a K-1 for partnership flow-through reporting).

At the end of this blog, I list significant Federal Tax Procedure or Federal Tax Crimes postings on the issue. Basically, the state of play was that the Tax Court held in a precedential decision that the taxpayer's fraud is not required. Allen v. Commissioner, 128 T.C. 37 (2007). The Court of Appeals for the Federal Circuit held that the taxpayer's fraud is required. BASR P'ship v. United States, 795 F.3d 1338 (Fed. Cir. 2015). In Finnegan v. Commissioner, 926 F.3d 1261 (11th Cir. 2019), the Court affirmed the Tax Court's Allen holding that the taxpayer waived the statute of limitations argument in the Tax Court.

In Murrin v. Commissioner, T.C. Memo. 2024-10, TA here & GS here, decided yesterday, the Tax Court held that Allen was still the interpretation the Tax Court will apply despite the holding in BASR. The Murrin opinion is 13 pages long and analyzes why BASR was not sufficiently persuasive to justify reconsidering its precedential holding in Allen.

BASR is not binding precedent in Murrin under the Tax Court's Golsen rule because appellate authority is only binding when in the Circuit to which an appeal would be taken in the case (barring stipulation otherwise). Mrs. Murrin lived in New Jersey when she filed the Tax Court petition. Thus, her appeal would be to the Third Circuit which has no authority in point, thus requiring the Tax Court to apply its own authority under Golsen.

The IRS assertion of the Allen holding in Murrin means that it is continuing to assert the Allen holding in other cases, so as to permit at least one other Circuit to address the issue. The Eleventh Circuit punted on that opportunity in Finnegan.

As the saying goes, stay tuned.

Added 3/5/24 8:30pm Eastern:

See Bryan Camp, Lesson From The Tax Court:  Choose Your Return Preparer Carefully (Tax Prof Blog 3/4/24), here, discussing the "agency" theory for treating a return preparer's fraud as sufficient for the unlimited statute of limitations. I encourage readers to look at the comments on Bryan's posting where Bryan and I engage on the scope of the meaning of return preparer for purposes of the unlimited statute of limitations for fraud. And the overall question is whether limiting the unlimited statute to the taxpayer's or a return preparer's (however defined) fraud has some basis in the statute. The statute thus merely requires a fraudulent intent for the return reporting without any limitation to a taxpayer or return preparer fraud. Of course, in most instance, a return preparer will be involved, but one can imagine atypical instances where a return preparer might have done something fraudulent that permits the taxpayer and the return preparer to include the fraud on the return without their personal fraudulent intent.

My significant prior blogs on this issue (some of which are duplicated in the respect Federal Tax Procedure Blog and Federal Tax Crimes Blog):

• Taxpayer Waived Argument that § 6501(c)(1) Requires Taxpayer's Fraud for Unlimited Statute of Limitations (Federal Tax Crimes Blog 6/14/19), here (discussing Finnegan).
• Major Attorneys Fee Award for BASR Partnership Prevailing on the Allen Issue in Federal Circuit (Federal Tax Procedure Blog 2/11/17), here.
• Court of Appeals for Federal Circuit Holds that Fraud of the Taxpayer (Or Someone Closer to the Taxpayer than the Fraudster) is Required for Section 6501(c)(1) Unlimited Statute of Limitations (Federal Tax Crimes Blog 7/30/15; 7/31/15), here.
• Court of Federal Claims Holds that Unlimited Civil Statute of Limitations Requires Taxpayer's Fraud (Federal Tax Procedure Blog 10/3/13), here.
• Second Circuit Holds That Fraud on the Return -- Even If Not the Taxpayer's -- Causes an Unlimited Civil Assessment Statute of Limitations to Apply (Federal Tax Procedure Blog 2/4/13), here.
• Does the Preparer's Fraud Invoke the Unlimited Statute of Limitations? (Federal Tax Procedure Blog 8/5/12), here (discussing Allen; I argued erroneously that the Allen holding was incorrect)

This entry is also cross-posted on the Federal Tax Crimes Blog.