Your Tax Preparer Lied on Your Return and the IRS Can Still Come After You

Many taxpayers assume that hiring a professional tax preparer protects them from serious tax problems. A recent decision by the United States Court of Appeals for the Third Circuit shows that this assumption can be dangerously wrong. In Murrin v. Commissioner, the court ruled that the IRS may assess tax decades later when a return was fraudulent, even if the taxpayer personally did nothing wrong.

This case matters to everyday taxpayers because it answers a hard question: what happens when a tax preparer lies on a return without the client knowing it?

What Happened in the Murrin Case

Stephanie Murrin hired a tax preparer, Duane Howell, to prepare her federal income tax returns during the 1990s. Howell inserted false information into her returns that significantly reduced the tax shown as due. Years later, the IRS discovered the fraud.

Importantly, the IRS and the courts agreed on a critical fact: Murrin herself did not intend to evade tax. She did not ask for false entries, did not understand that they were being made, and did not benefit from any secret scheme.

More than twenty years after the original returns were filed, the IRS issued a notice of deficiency for unpaid taxes. Murrin argued that the normal three year statute of limitations had long expired.

The Legal Issue the Court Had to Decide

Under the tax law, the IRS generally has three years after a return is filed to assess additional tax. There is a major exception when a return is false or fraudulent with intent to evade tax. In that situation, the IRS may assess tax at any time.

The dispute in this case was simple to state but difficult in consequence: whose intent matters? Does the fraud exception apply only when the taxpayer personally intended to evade tax, or does it also apply when a tax preparer committed the fraud?

The Court’s Ruling

The Third Circuit sided with the IRS. The court held that the statute does not require fraudulent intent by the taxpayer herself. If a return is fraudulent and someone involved in preparing it intended to evade tax, the statute of limitations never starts.

In plain terms, the court ruled that a taxpayer can be exposed to tax assessments many years later because of a dishonest preparer, even if the taxpayer acted in good faith.

The court acknowledged that this result feels unfair, but emphasized that its role was to apply the law as written, not to rewrite it based on equity.

Why Did the Tax Preparer Make False Entries

The opinion does not describe every fraudulent line item in detail, but the broader record shows a familiar pattern. Howell repeatedly inflated deductions, fabricated expenses, and manipulated numbers to make clients appear to owe less tax.

Preparers who engage in this behavior are often motivated by client retention and reputation. A preparer who consistently delivers large refunds or unusually low tax bills can appear highly skilled to unsuspecting clients. Over time, this can attract more business, higher fees, and a sense of trust that reduces scrutiny.

In some cases, preparers also rationalize their conduct by telling themselves that the IRS will never audit older returns or that minor fabrications will never be detected. The Murrin case shows how dangerous those assumptions can be.

Schedule a Consultation if you have concerns about past returns prepared by someone else.

What This Means for Taxpayers

This decision sends a clear message: taxpayers remain responsible for the accuracy of their returns, even when they rely on a professional.

While penalties for fraud generally require taxpayer intent, the IRS ability to assess back taxes does not. Interest alone can grow to amounts far exceeding the original tax.

The practical takeaway is not to avoid using a tax preparer, but to understand the importance of reviewing returns, asking questions, and working with professionals who emphasize accuracy rather than aggressive outcomes.

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Source: Murrin v. Commissioner, United States Court of Appeals for the Third Circuit, filed August 18, 2025.