The U.S. Tax Court ruled this week that the three-year statute of limitations on the Internal Revenue Service attempting to collect on a tax return can be extended indefinitely, even when it was the taxpayer’s preparer who was responsible for committing a fraud.Under Section 6501(c)(1) of the tax code, when a fraudulent return is filed 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.
According to the case, the taxpayer was a UPS truck driver during 1999 and 2000, and hired a local preparer to file his returns during those years. In 2006, the preparer, Gregory D. Goosby, was convicted on 30 counts of willfully aiding and assisting in the preparation of false and fraudulent income tax returns, although the UPS driver’s returns -- on which Goosby allegedly claimed false itemized deductions -- were not used as the basis for any of the charges.
It wasn’t until March 2005 that the IRS issued a deficiency notice to the truck driver, requesting combined taxes for the two years of just over $12,000. The IRS did not levy any penalties on top of that amount.
In ruling for the IRS, the court wrote that, “The statute provides that the tax may be assessed at any time in the case of a false or fraudulent return with the intent to evade tax … Notably absent from this provision is any express requirement that the fraud be the taxpayer’s.”
Explaining its decision, the court also added that, “To find otherwise would allow a taxpayer to receive the benefit of a fraudulent return by hiding behind the preparer. Taxpayers whose returns are fraudulent owing to fraud committed by the preparers would escape their tax liability if the [IRS] commissioner were unable to identify or investigate the fraud within the normal three-year period.”
The opinion is available at www.ustaxcourt.gov/InOpHistoric/vallen.TC.WPD.pdf.
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