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The assessment statute is supposed to be a wall, but it has always had exceptions. As a general rule, Section 6501(a) of the Internal Revenue Code gives the IRS three years after a return is filed to assess tax. Clients count on that rule. Practitioners plan around it. A recent case shows the wall has a door, and the client does not always hold the key.
On June 22, 2026, the Supreme Court denied certiorari in
The denial leaves in place a precedential Third Circuit decision that should change how practitioners talk to clients about old returns and how to evaluate the people who prepared them.
The facts
Stephanie Murrin filed joint returns with her then-husband for 1993 through 1999. A preparer named Duane Howell handled those returns and the returns for two partnerships in which she was a general partner. Howell was not a careful professional having a bad year. His record included a suspended CPA license, a prior federal conviction in New York for preparing fraudulent returns for other taxpayers, and a 2007 guilty plea arising from a broader return-preparation fraud scheme.
The Murrins did not know Howell was falsifying their returns. The Tax Court record states that Howell placed false entries on the returns with the intent to evade tax. The Murrins did not provide false information and did not intend to evade tax.
The IRS issued a notice of deficiency in 2019, roughly two decades after the last return was filed. The parties stipulated to $65,318 in underpayments and $13,064 in accuracy-related penalties. Applying the normal rate of interest, the Third Circuit noted that Murrin faced an estimated $250,000 in interest, bringing the estimated total exposure to more than $328,000. Interest had become the largest part of the bill.
Murrin's argument was narrow and serious. She did not commit fraud. She did not intend to evade tax. Someone else's fraud, she argued, should not keep the assessment period open against her.
The courts disagreed
The Tax Court rejected that argument. Section 6501(c)(1) provides that, in the case of a false or fraudulent return with intent to evade tax, the IRS may assess at any time. The Tax Court held that the statute focuses on the nature of the return, not on the taxpayer's personal intent.
The Third Circuit affirmed in a precedential opinion. The analysis was principally textual. Section 6501(c)(1) does not say "taxpayer." It says "a false or fraudulent return with the intent to evade tax." The court held that taxpayer intent is not required.
The court drew additional support from
The court also relied on
The result aligns with
The split that remains
The Third Circuit's holding conflicts with the Federal Circuit's taxpayer-favorable result in
Murrin is binding in cases appealable to the Third Circuit, including Delaware, New Jersey, Pennsylvania and, where relevant, the U.S. Virgin Islands. It is persuasive in other circuits. In the Tax Court, the government's reading controls unless there is contrary controlling appellate authority. In the Federal Circuit under BASR, the taxpayer-intent rule survives.
Getting to the Federal Circuit generally requires paying the full assessment, filing an administrative refund claim, and suing in the Court of Federal Claims. A refund suit filed in federal district court ordinarily goes to the regional court of appeals, not the Federal Circuit. For a client facing tax, penalties and decades of interest, the Court of Federal Claims route is often financially impossible.
Read the Supreme Court denial for what it is. The court did not adopt the Third Circuit's reasoning. A denial of certiorari is not a decision on the merits. It signals nothing about which side is correct. But the denial leaves the Third Circuit judgment intact and the Tax Court's Allen line of cases undisturbed.
Expect more litigation on this issue. Congress could also amend Section 6501(c)(1) to tie the unlimited period to the taxpayer's own intent, or to the intent of the taxpayer and authorized agents only. Until Congress or the Supreme Court acts, practitioners must advise under the law as it stands.
What this means for clients
The exposure is real. The IRS still must prove the trigger.
A bad preparer is not enough. A suspended license, criminal history or sloppy work is a red flag and may be critical evidence. It does not by itself open the assessment statute. The trigger remains a false or fraudulent return with intent to evade tax.
Do not concede fraud too quickly. The IRS must prove more than error and more than negligence. In City Wide Transit, the Second Circuit found clear and convincing evidence that the accountant intended to evade the taxpayer's taxes before holding that Section 6501(c)(1) applied. A wrong return is not automatically a fraudulent one. A careless preparer is not automatically a fraudulent one. A client who did nothing wrong may still have factual defenses to the unlimited statute, even after Murrin.
Penalty defenses are separate. Section 6664(c)(1) allows a taxpayer to avoid Section 6662 and 6663 penalties by showing reasonable cause and good faith. That is a real argument for an innocent client who relied on a preparer. It addresses the penalty, not the underlying tax. Reasonable cause does not close the assessment period and does not erase the liability.
What to do now
Vet the preparer, not just the return. Before relying on prior-year work or advising on an old filing position, ask who prepared the returns and confirm that person was in good standing. Check license status. Search for disciplinary history, criminal proceedings, injunctions and IRS preparer penalties. A suspended license or conviction is not background information. In a Section 6501(c)(1) case, it may be the fact that turns a closed-looking year into an active assessment risk.
Preserve files when a questionable preparer touches the return. Normal retention schedules assume a closed statute. For returns prepared by someone later connected to fraudulent preparation, preserve the file indefinitely when the dollar exposure is material. Keep engagement letters, organizers, source documents, client communications, signed e-file authorizations and evidence of the preparer's credentials at the time of filing. The goal is to document what the client provided, what the client knew, and why the client's reliance was reasonable.
Document good faith before the notice arrives. Reasonable cause is easier to prove with a contemporaneous record. Record why the preparer was selected, what credentials were reviewed, what documents were supplied, and what questions were asked. If no warning signs existed, document that too. Build the file while the facts are fresh.
Raise preparer fraud in due diligence. In business acquisitions, partnership admissions, divorce matters, joint-return disputes, estate administration and indemnity negotiations, old preparer fraud is a contingent tax liability that may have no normal expiration date. The risk is strongest where the client remains liable on the return, assumes the liability, indemnifies another party, inherits control of an entity with old filings, or seeks innocent-spouse or contribution relief in a joint-return setting.
Know the appellate venue. In cases appealable to the Third Circuit, advise under Murrin. In cases appealable to the Second Circuit, City Wide Transit is unfavorable but should be read with its procedural concessions in mind. In refund litigation appealable to the Federal Circuit, BASR remains taxpayer-favorable. If Federal Circuit review is the goal, understand that the route ordinarily runs through full-payment refund litigation in the Court of Federal Claims, not a Tax Court deficiency case and not a district court refund case.
Separate the tax defense from the penalty defense. On the tax, the questions are: Was the return false or fraudulent? Was there intent to evade tax? Whose intent matters in the controlling forum? What evidence proves or disproves that intent? On the penalty, the question is reasonable cause and good faith under Section 6664(c)(1). A client can lose the statute-of-limitations argument and still have a strong penalty defense.
A taxpayer can be innocent of fraud and still lose the protection of the normal assessment period. In the Third Circuit and in the Tax Court, that result now rests on settled precedent. The Supreme Court declined to disturb it. The practitioner's duty to protect the client did not change with that decision. Vet the preparer, preserve the file, identify the forum, contest the fraud trigger where the facts support it, and build the good-faith record before the IRS asks for it.
