The U.S. Court of Appeals for the Third Circuit Court recently issued a ruling regarding fraudulent tax returns and how they can affect taxpayers many years later.
Between 1993 and 1999, Stephanie Murrin used the services of Duane Howell, who had worked for a number of years as a tax preparer. During that time Howell prepared tax returns for Murrin. Unbeknownst to Murrin and other clients, he falsified expenses to reduce their tax liability and submitted false tax returns on their behalf. Howell also falsified his own tax returns.
Twenty years later, Murrin received a Notice of Deficiency concerning tax underpayments from those years. The deficiency amounted to $65,318 in unpaid tax and a $13,064 penalty. While she did not contest the penalty, Murrin argued that the three-year statute of limitations had passed on the tax underpayment.
Looking at intent
The Tax Court found that Howell's intent to deceive the Internal Revenue Service (IRS) and commit tax evasion affected the IRS's limit to pursue the deficiency. As previously discussed, willfulness or intent can be the difference between civil penalties and the pursuit of a criminal tax investigation by the IRS. To learn more about triggers and warning signs for criminal tax fraud charges, see our ebook, "Will I Be Charged with Criminal Tax Fraud?"
Because Howell intended to evade the taxes through a false or fraudulent return, the Tax Court ruled that the IRS could pursue Murrin for the underpaid taxes even two decades later. Murrin appealed the Tax Court's decision to the Third Circuit.
The appeal
After reviewing the matter, the Third Circuit affirmed the finding of the Tax Court's decision. Much of the analysis focused on Murrin’s argument that, for the statute of limitations to be extended, the intent to evade tax must be the act of the taxpayer. The Court rejected that argument and held that Howell’s misconduct allowed the IRS to pursue the case years later. While the court acknowledged Murrin's view that the outcome was patently unfair, it concluded that the intentional wrongdoing of a tax preparer can affect an innocent taxpayer long after the returns are filed.
As for Howell, he pleaded guilty to tax crimes and faced a maximum sentence of eight years in prison and an approximately $500,000 fine. Public records do not clearly indicate the sentence he ultimately served. Murrin, decades later, remains responsible for the tax liability.
There are several takeaways from this case. Ensure your tax preparer is reputable, review your tax returns carefully before signing and keep in mind that fraudulent or falsely made tax returns may expose you to liability for years.
Experienced representation for fraudulent tax returns or a Notice of Deficiency
If you are concerned about information reported on a previously filed tax return, potential IRS allegations or tax litigation, speak with the tax attorneys at Robert J. Fedor, Esq., L.L.C. We provide criminal tax defense and legal counsel to help clients navigate complex tax disputes. Contact our legal team today at 440-250-9709 to request a consultation. We serve clients in Northeast Ohio, Chicago, New York City and internationally from our offices in Cleveland and Chicago.
