The recent decision by the United States Court of Appeals for the Third Circuit in Stephanie Murrin v. Commissioner of Internal Revenue, No. 24-2037 (3d Cir. August 18, 2025), delivers a crucial interpretation of Internal Revenue Code (I.R.C.) § 6501(c)(1) that impacts how tax professionals advise clients regarding statutes of limitations, at least in the Third Circuit. This ruling clarifies that the exception allowing the Internal Revenue Service (IRS) to assess tax "at any time" for a false or fraudulent return with intent to evade tax does not require the taxpayer’s personal intent. Instead, the intent of a third party, such as a tax preparer, is sufficient to trigger the indefinite assessment period.

Background of the Case

The appellant, Stephanie Murrin, faced a notice of deficiency issued by the IRS in 2019 regarding underpayments on her tax returns from 1993 to 1999. This assessment occurred more than 20 years after the returns were filed, far exceeding the typical three-year statute of limitations under I.R.C. § 6501(a). The undisputed material facts established that Murrin’s tax preparer, Duane Howell, was responsible for placing false or fraudulent entries on her returns with the specific intent to evade tax. Crucially, Murrin herself did not cause these false entries and did not harbor any intent to evade tax.

While Murrin agreed with the IRS on the amount of underpaid tax ($65,318), the application of a $13,064 accuracy-related penalty, and the imposition of interest, her core dispute revolved solely around the applicability of the statute of limitations. She argued that the IRS’s assessment was barred because it fell outside the three-year period. The Tax Court, however, held that I.R.C. § 6501(c)(1) applied due to Howell’s fraudulent intent, thereby removing the statute of limitations as a bar to the IRS’s notice of deficiency. Murrin subsequently appealed this judgment. The Tax Court had jurisdiction under I.R.C. §§ 6213(a) and 7442, and the Court of Appeals exercised de novo review over the Tax Court’s interpretation of the Code under I.R.C. § 7482(a)(1).

Taxpayer’s Request for Relief

Stephanie Murrin’s primary contention was that only the taxpayer’s intent to evade tax should matter for the exception under I.R.C. § 6501(c)(1) to apply. Given that she herself lacked such intent, she asserted that the indefinite statute of limitations should not be triggered. Murrin argued that because I.R.C. § 6501(a) refers to "the return required to be filed by the taxpayer," the fraudulent intent referenced in I.R.C. § 6501(c)(1) must, by implication, be limited to fraud committed by the taxpayer. She stressed that any other reading would unnaturally interpret the statute, contrary to a commonsense understanding.

Furthermore, Murrin suggested that the Tax Court’s interpretation rendered the phrase "intent to evade tax" superfluous by focusing solely on the "false or fraudulent return" aspect. She also raised concerns about the workability of such an interpretation, suggesting it would offend basic due process and fairness principles by failing to define whose intent might be relevant. Murrin drew parallels with I.R.C. § 6663(a) (the fraud penalty), noting that both provisions, originating from the Revenue Act of 1918, use passive voice and argued that the limitation to taxpayer conduct for the fraud penalty should carry over to the statute of limitations exception. She similarly pointed to I.R.C. § 6161(b)(3), which disallows extensions of time for payment due to fraud, contending that it would be absurd for a third party’s intent to affect a taxpayer’s ability to seek such an extension, thereby supporting her interpretation of I.R.C. § 6501(c)(1). Murrin also cited Asphalt Industries, Inc. v. Comm’r, 384 F.2d 229 (3d Cir. 1967), as binding precedent supporting her position. Finally, she argued that affirming the Tax Court would "reject[] 100 years of tax jurisprudence," noting that the IRS’s interpretation allowing non-taxpayer intent only emerged in 2001, and highlighted the Federal Circuit’s decision in BASR P’ship v. United States, 795 F.3d 1338 (Fed. Cir. 2015), as aligning with her view.

Court’s Legal Framework and Analysis

The Third Circuit systematically examined the interpretation of I.R.C. § 6501(c)(1) by analyzing its text, statutory context, and relevant precedent.

Plain Text Interpretation of I.R.C. § 6501(c)(1)

The court commenced its analysis with the statutory text, adhering to the principle of giving words their ordinary meaning. It concluded that I.R.C. § 6501(c)(1) does not require taxpayer intent. The statute focuses on "a false or fraudulent return with the intent to evade tax" and lacks any express or implied textual indication that the "intent to evade tax" is confined to the taxpayer. The terms "intent" and "to evade" are not restricted to specific individuals. While "tax" concerns duties owed by a taxpayer, the overall phrase means someone planned to avoid duties owed to the Government, without implying a specific actor.

Crucially, the court emphasized Congress’s use of passive voice in I.R.C. § 6501(c)(1). By drafting the statute to focus "on an event that occurs without respect to a specific actor," Congress was "agnostic about who" had the intent to evade tax. The court acknowledged Murrin’s argument that the tax evaded is owed by the taxpayer, but reiterated that the plainest reading of I.R.C. § 6501(c)(1) requires only an "intent to evade tax" attached to a "false or fraudulent return," irrespective of whether that intent belonged to the taxpayer, an accountant, lawyer, or tax preparer.

The court further noted that Congress has demonstrated its ability to limit statutes to taxpayer conduct when intended. The absence of the term "taxpayer" in I.R.C. § 6501(c)(1), despite its presence in I.R.C. § 6501(a) to define whose return is at issue, indicates a deliberate difference in meaning. The court dismissed Murrin’s argument that its interpretation rendered "intent to evade tax" superfluous, explaining that the construction still demands both an act (false or fraudulent return) and a mental state (intent to evade tax). It also rejected the "unworkable" argument, stating that determining whose intent matters beyond the stipulated preparer intent was not necessary for this case and that the Tax Court has proven capable of addressing such issues.

Statutory Context of I.R.C. § 6501(c)(1)

The court found that the broader statutory context of I.R.C. § 6501 reinforced its interpretation, specifically by showing that Congress knows how to limit statutes to taxpayer conduct. The court contrasted I.R.C. § 6501(c)(1) with the Code’s fraud penalty provisions (I.R.C. §§ 6663, 6664, and 7454). While I.R.C. § 6663(a) authorizes a fraud penalty when underpayment is "due to fraud," other provisions like I.R.C. § 6663(c), I.R.C. § 6664(c)(1), and I.R.C. § 7454(a) explicitly reference the taxpayer’s conduct, good faith, or proof of fraud "of such spouse" or "petitioner [taxpayer]". This consistent reference makes clear that the "fraud" in I.R.C. § 6663(a) refers to the taxpayer’s fraud. The absence of such contextual limitation in I.R.C. § 6501(c)(1) therefore confirms that "intent to evade tax" includes no implied limitation to the taxpayer. The court further noted that Congress knows how to limit statutes to third parties, such as tax preparers, as seen in I.R.C. § 6694(a).

Regarding Murrin’s in pari materia argument based on the Revenue Act of 1918, the court highlighted that identical words can be construed differently based on context. Even in the 1918 Act, the fraud penalty provision (§ 250(b)) contained taxpayer-referencing limitations, whereas the statute-of-limitations exception (§ 250(d)) did not, further supporting the distinction in scope.

The court disagreed with Murrin’s argument concerning I.R.C. § 6161(b)(3), stating that its similar drafting to I.R.C. § 6501(c)(1)—without limiting application to taxpayer intent—actually supports the court’s interpretation. The court reasoned that Congress treats the collection of taxes (addressed by I.R.C. §§ 6161(b)(3) and 6501(c)(1)) differently from the imposition of penalties (addressed by I.R.C. §§ 6663(c), 6664(c)(1), and 7454(a)). It is logical that penalties are imposed only when the taxpayer intended to evade tax, while the IRS can collect taxes based on an understated fraudulent return "at any time," regardless of who intended the evasion.

Relevant Precedent

The court relied on Supreme Court precedent to support its view. The recent decision in Bartenwerfer v. Buckley, 598 U.S. 69 (2023), concerning a Bankruptcy Code provision regarding debt "obtained by . . . fraud," was deemed highly relevant. The Supreme Court unanimously held that the passive voice in that statute "pull[ed] the actor off the stage," meaning the debt needed only to result from someone’s fraud, not necessarily the debtor’s. The Third Circuit found I.R.C. § 6501(c)(1)’s "intent to evade tax" language analogous, as it also focuses on an event (false or fraudulent return) without specifying the actor. By using passive voice, Congress indicated its intent that the statute of limitations does not apply when someone intends to evade tax in filing a false or fraudulent return, whether it is the taxpayer or not.

The court also cited Badaracco v. Comm’r, 464 U.S. 386 (1984), where the Supreme Court interpreted I.R.C. § 6501(c)(1) to mean that its "unqualified language" allowing assessment "at any time" is not suspended even if a fraudulent filer later files a non-fraudulent amended return. This precedent dictates that a statute of limitations like I.R.C. § 6501(c)(1) "must receive a strict construction in favor of the Government". The court concluded that Murrin’s argument ran contrary to this principle.

The court clarified that Asphalt Industries, Inc. v. Comm’r was misread by Murrin. In Asphalt, the president’s embezzlement caused false corporate returns, but the court held it was not imputed for I.R.C. § 6501(c)(1) because the tax fraud was merely a "subordinate element" to conceal the embezzlement. The Asphalt court did not address whether a non-taxpayer could independently satisfy I.R.C. § 6501(c)(1), nor was it argued that the embezzlement constituted intent to evade the corporation’s tax. Thus, Asphalt did not answer the interpretive question before the court in Murrin.

Finally, the court acknowledged that its holding aligns with the established position of the Tax Court since Allen v. Comm’r, 128 T.C. 37 (2007), which applied I.R.C. § 6501(c)(1) based on a tax preparer’s intent to evade tax. Subsequent Tax Court cases, including those involving Murrin’s own preparer, Duane Howell, have followed this precedent. The court openly departed from the Federal Circuit’s opinion in BASR P’ship, which required taxpayer intent, explaining that BASR relied heavily on context and legislative history rather than the plain text. It also distinguished the Fifth Circuit’s decision in Payne v. Comm’r, 224 F.3d 415 (5th Cir. 2000), noting that Payne focused on taxpayer intent because the taxpayer was the actor at issue, not a third party.

Application to the Facts

Applying its interpretation of the law to the undisputed facts, the court concluded that because Stephanie Murrin’s tax preparer, Duane Howell, placed false or fraudulent entries on her tax returns with the intent to evade tax, the exception to the statute of limitations under I.R.C. § 6501(c)(1) was triggered. Murrin’s personal lack of fraudulent intent was irrelevant because the statute is agnostic as to whose intent matters.

Conclusion and Implications

The Third Circuit affirmed the judgment of the Tax Court, upholding the IRS’s ability to assess tax against Stephanie Murrin outside the standard three-year statute of limitations. While acknowledging Murrin’s "financial pain" and understandable frustration given that her preparer caused the underpayments, the court reiterated its duty to apply the statute as enacted by Congress. The court stressed that while Congress has limited the imposition of fraud penalties to instances of taxpayer intent, the text, context, and precedent of I.R.C. § 6501(c)(1) demonstrate that Congress was "agnostic" about whose intent to evade tax was necessary for the IRS to achieve a "full and accurate assessment of taxes".

This decision serves as a critical reminder for CPAs and EAs that fraudulent intent on the part of a tax preparer or other third party can indefinitely extend the statute of limitations for assessment against the taxpayer in the view of the IRS, even if the taxpayer was innocent of any intent to evade tax. While taxpayers may still challenge accuracy-related penalties and interest if they can demonstrate "reasonable cause" and "good faith" under I.R.C. § 6664(c)(1), the underlying tax liability remains subject to assessment at any time under these circumstances.

While the Federal Circuit disagreed with this approach in BASR P’ship v. United States, the Third Circuit supported the Tax Court’s view that the preparer’s fraudulent intent kept the statute of limitations open for the IRS to collect the very old deficiency from the taxpayer. The key practical problem for taxpayers is that while any taxpayer could direct their case to the Federal Circuit by filing their case for a refund in the United States Court of Federal Claims, such an action would be a claim for refund requiring the taxpayer to pay the amounts due before suing for the refund, something most taxpayers would prefer not to do.

Tax professionals must emphasize robust due diligence in tax preparation and advise clients on the potential long-term liabilities stemming from third-party fraud, reinforcing the importance of selecting reputable and trustworthy preparers.

Prepared with assistance from NotebookLM.