FTPB Working Draft 2026 Revisions on § 6501(c) Unlimited Civil Statute of Limitation for Fraud (7/12/26)

In working on my working draft for the Federal Tax Procedure 2026 editions (due for publication on SSRN in early August), I have substantially revised the discussion of § 6501(c)(1). Readers will recall that one hot issue in tax litigation is whether § 6501(c)(1) requires taxpayer fraud or may apply when nontaxpayer fraud is on the return without the taxpayer having committed the fraud.

The working draft revisions with footnotes may be downloaded here. The following is the text for the Student Edition without Footnotes (same as Practitioner Edition without footnotes).

          C.     Exceptions to the General Three-year Statute.

          The exceptions to assessment statutes of limitations are in the statute. The key exceptions to the general 3-year rule are: 

                   1.     False Return or Attempted Evasion.

                             a.      General Rule-Fraud on Return and Unlimited Statute.

          Section 6501(c)(1) and (c)(2) provide exceptions to the normal 3- or 6-year statutes of limitation in certain instances involving tax fraud:

          (1) False return. In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.

          (2) Willful attempt to evade tax. In case of a willful attempt in any manner to defeat or evade tax imposed by this title (other than tax imposed by subtitle A or B), the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.

We encountered the (c)(1) Exception in Badaracco (p. 161) where the Supreme Court held that a subsequently filed nonfraudulent amended return does not avoid the unlimited statute of limitations for an original fraudulent return. Fraud for this purpose is the same as the definition for fraud for purposes of the civil fraud penalty under § 6663. I often refer to these two civil consequences of fraud as “civil fraud.”

          Badaracco addressed a potential anomaly between failure to file a return and filing a fraudulent return. The anomaly is this: A person who fails to file a timely return with the intent to evade tax can get the benefit of the three-year statute of limitations by simply filing a delinquent nonfraudulent original return. Yet, a person who files a fraudulent original return but then files an amended nonfraudulent return cannot achieve the benefit of the statute of limitations. That is the holding of Badaracco. Consider the following examples:

           Example 1. Assume the taxpayer files a Year 01 original fraudulent return on April 1 of Year 02 and then files a nonfraudulent amended return on January 1 of Year 03. Under Badaracco's holding, there is no statute of limitations because his original return was fraudulent. 

Out-of-Time Deficiency Case Declaring NOD Invalid but with ASED Statute Still Open (4/17/24)

In my Federal Tax Procedure book, I note that there may be some procedural foot-fault in the IRS issuance of a notice of deficiency (“NOD”), such as failure to send to the last known address. If the NOD is invalid, any resulting assessment is invalid. I note that a traditional way to challenge the NOD for failure to send to the last known address is by filing an out-of-time petition for redetermination with the Tax Court. If the Tax Court then dismisses for lack of jurisdiction of an untimely petition it may base the decision on the invalidity of the NOD which invalidates the assessment requiring a valid NOD; that will invalidate the assessment. I caution that this gambit might be a pyrrhic victory if the IRS can still issue a new deficiency for which the statute of limitations is still open when the Tax Court dismisses.  (See the Federal Tax Procedure book 2023.2 Practitioner Edition pp. 515-516.)

Phillips v. Commissioner, T.C. Memo 2024-44, TA here & GS here, is such a case. In Phillips which the Court says is a deficiency case (see p. 1; for more explanation see my note # 1 below explaining how a CDP case morphed into a separate deficiency case), the petition for redetermination of the deficiency was out of time. The Court found the NOD and resulting assessment to have been invalid for failing the last known address requirement. In getting to the holding of invalidity, the Court offers good discussion of the application of the Regulations on last known address including the IRS access to USPS change of address information as a licensee, the IRS’s processes for insuring last known address, and the IRS’s failure to meet the Regulations’ requirements in this case. I will not further address the merits of the Tax Court’s last known address resolution.

I focus instead on the Phillips opinion’s closing shot (p. 15 n. 10):

Nothing in this Opinion should be construed as limiting respondent’s ability to issue petitioner a new notice of deficiency for 2014 that is properly mailed to petitioner’s last known address.

Second Circuit Holds That Fraud on the Return -- Even If Not the Taxpayer's -- Causes an Unlimited Civil Assessment Statute of Limitations to Apply (2/4/13)

THIS BLOG ENTRY IS A CUT AND PASTE FROM AN ENTRY WITH THE SAME TITLE ON MY FEDERAL TAX CRIMES BLOG, HERE.

I have written in the past on nontaxpayer fraud as the fulcrum for an unlimited statute of limitations under Section 6501(c)(1) & (2), here.  I provide a list of the most pertinent blogs on my Federal Tax Crimes Blog this issue.  The issue arose from the Tax Court's opinion in Allen v. Commissioner, 128 T.C. 37 (2007), which held for the first time that preparer fraud invokes the unlimited statute of limitations.  The IRS had earlier held that, where a joint tax return was filed, one spouse's fraud would permit the unlimited statute as to the innocent spouse.  But the conventional wisdom to that point was that some taxpayer fraud was required to the unlimited statute.  The Tax Court in Allen read the statute literally; it included no requirement of taxpayer fraud.

In City Wide Transit, Inc. v. Commissioner, 709 F.3d 102 (2d Cir. 2013), here, the Second Circuit -- the second court to confront the issue head on -- aligned itself with Allen in a case involving preparer fraud that was included on the return of otherwise innocent taxpayers.  I quote the key parts of the Second Circuit decision (I have bold-faced some portions that, I think, are worthy of attention):

In analyzing § 6501(c)(1), we remain mindful that "limitations statutes barring the collection of taxes otherwise due and unpaid are strictly construed in favor of the [Commissioner]." Bufferd v. Comm'r, 506 U.S. 523, 527 n.6 (1993) (internal quotation marks and citations omitted). "Accordingly, taking [that obligation] into account, we conclude that the limitations period for assessing [the taxpayer's] taxes is extended if the taxes were understated due to fraud of the preparer." Browning v. Comm'r, 102 T.C.M. (CCH) 460, 2011 WL 5289636, at *13 n.14 (2011) (quoting Allen v. Comm'r, 128 T.C. 37, 40, 2007 WL 654357, at *40 (2007)). This makes intuitive sense because "the special disadvantage to the Commissioner in investigating fraudulent returns is present if the income tax return preparer committed the fraud that caused the taxes on the return to be understated." Allen, 2007 WL 654357, at *40.