Supreme Court leaves preparer fraud tax assessment rule in place

The Supreme Court’s refusal on June 22 to hear Murrin left tax controversy teams with a sharper warning: under 26 U.S.C. § 6501(c)(1), the IRS can assess tax “at any time” when a return is false or fraudulent, even if the taxpayer did not mean to evade tax. For KPMG preparers, reviewers and controversy specialists, that makes the quality of the workpapers and the trail behind a return part of the legal defense.

The Third Circuit’s August 18, 2025 ruling now stands, and it said taxpayer intent is not required for the unlimited assessment period when the preparer’s fraud is the problem. In Stephanie Murrin’s case, the returns at issue were filed for tax years 1993 through 1999, then examined and assessed in 2019, almost 20 years later. Her lawyers said the bill, including interest, was about $328,000. The court found that her preparer, Duane Howell, made false or fraudulent entries with intent to evade tax, while Murrin herself did not intend to evade tax.

That distinction is the part tax departments need to internalize. The decision means a file does not become safer just because the client is unaware of the problem. If a preparer, reviewer or engagement team member crosses the line into fraud, the statute of limitations may stay open long after the ordinary three-year window has closed. In practice, that puts more weight on supervisory sign-off, return-review procedures, contemporaneous notes and document retention, especially on partnership filings, aggressive positions and other high-risk returns.

The ruling also deepens a circuit split with the Federal Circuit’s BASR Partnership line of cases, so forum can matter. A case with the same basic facts may travel differently depending on where it lands, and that uncertainty is exactly why controversy teams need early escalation when facts look strained. The Supreme Court’s own Badaracco decision has long recognized that fraud cases are harder to investigate because records may be falsified or destroyed, which is one reason clean documentation now carries so much value.

For tax leaders, the message is straightforward: a preparer-fraud issue is not just an audit problem for the current year. It is a long-tail exposure problem that can follow a return for decades, and it makes routine controls, especially in busy season, part of the legal risk stack rather than mere process.