Tax Court Judge Mark V. Holmes gave an overview of noteworthy judicial developments, including the Court of Federal Claims' September 30 decision in BASR Partnership v. United States, No. 1:10-cv-00244 (Fed. Cl. 2013) 2013 TNT 211-10: Court Opinions. That decision is "jurisprudentially interesting," Holmes said, because its holding is at odds with a 2007 Tax Court decision regarding whose fraudulent intent is required under section 6501(c)(1) to extend the three-year statute of limitations period for assessment of income taxes.
In BASR Partnership, the court held that the phrase "intent to evade tax," as it is used in section 6501(c)(1), is limited to cases in which the taxpayer has the requisite intent to commit fraud. The court said that section 6501(a) is expressly limited to a return filed by the taxpayer; by implication, section 6501(c) is limited to fraud by the taxpayer, it concluded. (Prior coverage 2013 TNT 191-3: News Stories.)
That reasoning is at odds with the Tax Court's decision in Allen v. Commissioner, 128 T.C. 37 (2007) 2007 TNT 44-11: Court Opinions, in which the court held that a preparer's fraudulent intent to evade tax is sufficient to keep the limitations period open. "Nothing in the plain meaning of the statute suggests the limitations period is extended only in the case of the taxpayer's fraud," the court wrote, adding that the statute "keys the extension to the fraudulent nature of the return, not to the identity of the perpetrator of the fraud."
"So we have the express language canon, I suppose, going up against the plain language canon," Holmes said. "Something will have to give. Both of these opinions are relatively short, given the depth of material that one can bring to this issue."
Holmes noted that Bryan T. Camp of Texas Tech University School of Law wrote several articles after the Tax Court's Allen decision in which he traced the legislative history of section 6501(a). According to Camp's research, the concepts of "false or fraudulent return" and "intent to evade tax" date back to the Revenue Act of 1862. Based on the legislative history, Camp concluded that "the section 6501(a) assessment limitations period represents a very strong public policy choice in favor of closure," such that "the fraud exception should be read to refer to the taxpayer's fraud and not the fraud of a third party such as a return preparer." (See "Tax Return Preparer Fraud and the Assessment Limitation Period," Tax Notes, Aug. 20, 2007, p. 687 2007 TNT 162-30: Viewpoint, and "Presumptions and Tax Return Preparer Fraud," Tax Notes, July 14, 2008, p. 167 2008 TNT 136-33: Viewpoint.)
"If the phrase 'intent to evade tax' means the same thing consistently from 1862 until now, that would suggest that the claims court is right," said Holmes. "If, on the other hand, the use of that phrase in different contexts in different sentences on both sides has changed its meaning, then the Allen case from the Tax Court is right. The Second Circuit, I believe, is the only circuit that has dealt with this, in a case called City Wide." (City Wide Transit Inc. v. Commissioner, 709 F.3d 102 (2d Cir. 2013) 2013 TNT 42-32: Court Opinions.)
"The Second Circuit assumed the Tax Court was right about this," Holmes continued. "We'll see how this plays out. An appeal to the Federal Circuit would seem, to my mind, to be almost inevitable."Key prior blogs on this issue are;
- Court of Federal Claims Holds that Unlimited Civil Statute of Limitations Requires Taxpayer's Fraud (Federal Tax Crimes Blog 10/3/13), here, discussing BASR [113 Fed. Cl. 181].
- Second Circuit Holds That Fraud on the Return -- Even If Not the Taxpayer's -- Causes an Unlimited Civil Assessment Statute of Limitations to Apply (Federal Tax Crimes Blog 2/4/13; Material Corrections on 2/5/13), here, discussing City Wide.
- IRS Queasiness Over the Reaches of Allen (Federal Tax Crimes Blog 9/22/12), here.
- Does the Preparer's Fraud Invoke the Unlimited Statute of Limitations? (Federal Tax Crimes Blog 8/5/12), here.