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. 

Relationship Between Tax Court and Refund Fora - Burden to Prove Fraud (10/20/12)

In my Federal Tax Procedure course (and I presume similar courses taught by others), we cover the principal fora to litigate tax disputes.  Historically, tax disputes were litigated in the district courts and sometimes in the predecessor to the Court of Federal Claims.  With the enactment of the broader based income tax after the 16th Amendment, Congress felt that there were two key problems with the refund fora -- (i) the requirement of prepayment and (ii) the sometimes daunting technicalities of pleading and proof particularly in the district courts prior to adopt Federal Rules.  Accordingly, Congress created the Board of Tax Appeals to offer a prepayment tax litigation forum and a less technically daunting litigation experience.

The Board of Tax Appeals and its predecessor Tax Court occasionally struggled with the issue of the precise relationship of its jurisdiction to resolve tax disputes in comparison to that of the district court.  This struggled evidenced itself in the issue of whether the Tax Court had jurisdiction to consider equitable concepts such as equitable recoupment that district courts could apply in resolving tax disputes.  In our class, I assign Estate of Branson v. Commissioner, 264 F.3d 904 (9th Cir. 2001) here, that presents this issue well.  The Branson decision is by Judge Sneed (Wikipedia entry here), formerly a tax professor at several law schools and then Dean at Duke before being appointed to the Ninth Circuit.  There are technical jurisdictional issues involved because the Tax Court is a court of limited jurisdiction whereas the district court is a court of general jurisdiction.  However, I thought the issue should always turn upon whether, given the purpose of the Tax Court (and its predecessor Board of Tax Appeals), different substantive results should obtain in the district court than in the Tax Court when these equitable concepts otherwise could apply.  I think that there is no evidence that Congress intended such different results.  The Tax Court now has these powers.

Regarding the differences in the Tax Court and the refund fora, I just re-read a delightful decision by Judge Henry Friendly of the Second Circuit Court of Appeals.  Judge Friendly was one of the leading jurists of all time (Wikipedia entry here).  In Paddock v. United States, 280 F.2d 563 (2d Cir. 1960), here, the Court held that the same requirement that the Government prove fraud applied in the district court as applied in the Tax Court.  Congress expressly so provided as to the Tax Court in the predecessor to Section 7454(a) but did not make that provision applicable to the other fora.  So, in this refund case, the Government rotely chanted the "money had and received" refund burden in Lewis v. Reynolds, 284 U.S. 281 (1931), here, that the taxpayer must prove the right to refund, including the amount, and thus argued that the taxpayer must prove the absence of fraud where the taxpayer wants a refund of a civil fraud penalty he paid.  Essentially, working in the reverse, Judge Friendly was persuaded that Congress could not have wanted the IRS to bear that burden in a Tax Court case but not in a refund suit.