Affirming the Tax Court’s decision, the Eleventh Circuit Court of Appeals has ruled that the fraud exception to the 3-year statute of limitations on assessments applied where a married couple’s returns were fraudulently prepared by their preparer. (Finnegan, (CA 11 6/11/2019)) As many of us do, John and Joan Finnegan ("Taxpayers") hired someone to prepare their tax returns.
Taxpayers challenged the notice of deficiency in the Tax Court. They argued that the IRS waited too long to collect. Generally, the IRS must make assessments within three years after a tax return is filed.
But there’s an exception, and the three-year window is suspended, "[i]n the case of a false or fraudulent return with the intent to evade tax." (We call this the fraud exception.)
Taxpayers argued that the fraud exception did not apply because the IRS could not meet its evidentiary burden and show that their returns were in fact fraudulent. Taxpayers admitted that their return preparer created fraudulent returns for his other clients, but,
Taxpayers said, the IRS could not prove that the return preparer falsely or fraudulently prepared their returns.
Crucially, Taxpayers conceded—time and time again—that if the Tax Court did find that their returns were fraudulent, the exception to the three-year window would be triggered.
The court also rejected the couple’s argument that the Tax Court abused its discretion by accepting the preparer’s out-of-court statement admitting his culpability.
Read more at: Tax Times blog
