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Valerm Law Group, San Juan (2026)

15/06/2026

FIFTH CIRCUIT EXPANDS LIMITED PARTNER EXCEPTION FOR SELF-EMPLOYMENT TAX

On April 1, 2026, the Internal Revenue Service (IRS) filed a petition for a rehearing en banc in the case of Sirius Solutions LLLP v. Commissioner, No. 24-60240 (5th Cir.), which addresses the scope of the limited partner exception under Section 1402(a)(13) of the United States Internal Revenue Code (Code).

I. Background and Procedural Posture

Sirius Solutions, LLLP (Sirius), a Delaware limited liability limited partnership, operated a consulting business whose income was derived primarily from the services of its partners. Although certain partners were designated as “limited partners” under state law, it was undisputed that they actively managed the business, exercised control, supervised employees, and devoted full-time efforts to the enterprise.

For tax years 2014 through 2016, Sirius excluded the distributive shares of these partners from self-employment income, reporting zero net earnings subject to self-employment tax. The IRS challenged this treatment, asserting that the partners’ active involvement rendered their income subject to self-employment tax notwithstanding their state-law classification.

The United States Tax Court, relying on its prior decision in Soroban Capital Partners, LP v. Commissioner, applied a functional analysis and held that the partners were not “limited partners” within the meaning of Section 1402(a)(13). The Fifth Circuit (Court) reversed in a split decision.

We hereby highlight the Fifth Circuit’s decision.

II. Court’s Opinion

- Majority Opinion: The Fifth Circuit majority adopted a formalistic, state-law-based interpretation of Secction 1402(a)(13). It held that a “limited partner” for purposes of the statute is any partner who holds limited liability under state law, regardless of whether the partner actively participates in the management or operation of the partnership. Under this approach, the statutory exclusion applies broadly to partners in limited partnerships or similar entities who are classified as limited partners, even if they perform substantial services and exercise significant control. The majority rejected the Tax Court’s functional analysis, favoring a rule that emphasizes administrability and reliance on state-law designations.

- Dissent: Judge Graves dissented, arguing that the majority’s interpretation contravenes the text, structure, and historical context of Section 1402(a)(13). The dissent emphasized that, at the time of enactment in 1977, a “limited partner” was universally understood to be a passive investor who did not participate in management and whose limited liability was contingent on such non-participation. The dissent further contended that the majority’s reliance on state-law classifications improperly incorporates evolving state-law concepts into federal tax law, contrary to established Supreme Court precedent. It also highlighted that the statutory distinction between distributive shares and guaranteed payments reflects Congress’s intent to tax income derived from services, regardless of formal labels.

The case has substantial fiscal implications, as the IRS has indicated that similar disputes involve hundreds of millions of dollars in potential tax revenue. Moreover, the decision introduces tension among courts and increases the likelihood of further appellate review, particularly in light of similar cases pending in other circuits.

&TaxLawyers

08/06/2026

CONSTITUTIONAL CHALLENGE TO JURY TRIAL RIGHTS IN FEDERAL TAX PENALTIES ASSESSED UNDER THE U.S. INTERNAL REVENUE CODE

Currently pending before the Supreme Court of the United States, Hirsch v. United States Tax Court (No. 25-739) seeks review of a decision by the U.S. Court of Appeals for the Eleventh Circuit. The petitioners challenge the denial of a jury trial in Tax Court proceedings involving substantial fraud penalties imposed by the Internal Revenue Service (IRS). The Supreme Court has requested a response from the government, indicating potential interest in reviewing the constitutional questions presented.

The case stems from IRS determinations assessing millions of dollars in fraud penalties under Sections6651(f) and 6663 of the US Internal Revenue Code, which were adjudicated in the United States Tax Court without a jury. Petitioners sought mandamus relief after the Tax Court denied their jury demand, but the Eleventh Circuit rejected the petition, holding that the right to a jury trial was not “clear and indisputable” and that alternative remedies were available.

The petition raises two principal constitutional issues:

- First, whether a court of appeals must issue a writ of mandamus when a taxpayer is denied a jury trial, without applying traditional limitations such as the requirement that the right be “clear and indisputable.”

- Second, whether the Internal Revenue Code violates the Seventh Amendment and Article III by permitting the IRS to impose monetary fraud penalties without affording taxpayers a jury trial.

We hereby highlight the petitioner’s arguments.

I. Petitioner’s Arguments

- Seventh Amendment and Historical Framework: The petitioners and supporting amici argue that tax fraud penalties are analogous to common-law fraud claims and therefore fall within the scope of the Seventh Amendment’s guarantee of a jury trial in “suits at common law.” Historically, tax penalties—particularly those involving allegations of fraud—were adjudicated before juries, reflecting a longstanding tradition that punitive monetary sanctions require jury determination.

- Public Rights Doctrine and Administrative Adjudication: The Tax Court and lower courts have relied on the “public rights” doctrine to uphold the constitutionality of juryless adjudication. Under this theory, disputes involving the government’s sovereign functions (such as tax assessment and collection) may be resolved in non-Article III tribunals without a jury. However, petitioners argue that fraud penalties are punitive and closely resemble private-rights disputes, distinguishing them from routine tax collection matters. Supporting amici assert that such penalties do not fall within the public rights exception, particularly in light of the Supreme Court’s recent decision in SEC v. Jarkesy (2024), which held that civil penalties for securities fraud require a jury trial.

The case has broad implications for federal tax administration. IRS data indicates that hundreds of thousands of accuracy-related penalties and thousands of fraud penalties are imposed annually, amounting to billions of dollars. If the Supreme Court extends jury trial rights to such penalties, it could significantly alter the structure of tax enforcement and increase reliance on Article III courts.

&TaxLawyers

01/06/2026

OPERATIONAL AND COMPLIANCE GUIDELINES FOR PRIVATE EQUITY FUNDS UNDER PUERTO RICO INCENTIVES CODE

On March 11, 2026, the Puerto Rici Economic Development and Commerce of Puerto Rico (“DDEC”) issued Administrative Order DDEC 2026-002 (“Order”), providing operational and compliance guidelines for private equity funds operating under Act No. 60-2019, known as the "Puerto Rico Incentives Code". This Order responds to inquiries regarding investment eligibility in private equity funds and incorporates guidance from the Office of the Commissioner of Financial Institutions (“OCIF”) to ensure transparency, uniformity, and long-term financial integrity of such funds.

The Order applies to all private equity funds, including Puerto Rico-based funds, operating under a tax exemption decree issued by the DDEC pursuant to Sections 1020.04(a)(13), (14) and 2044.03 of the Incentives Code.

Its purpose is to formalize rules governing the administration, investment, and operation of private equity funds while clarifying definitions and eligibility standards for contributions, investments, and economic impact requirements.

We hereby provide an overview of the Order.

I. Key Definitions

The Order provides critical definitions to guide fund administration and investment compliance:

- Accredited Investor Contribution: The net amount invested by an accredited investor, excluding loans or financing from the fund to the investor. Paid-in capital cannot be used to provide loans to individuals.

- Active Business Entity: An entity actively engaged in economic operations in Puerto Rico, generating at least 80% of gross income from business activities on the island, with requisite personnel, facilities, or assets. Subsidiaries may be aggregated for compliance if the parent or managing member owns 50% or more of voting interests.

- Passive Entity: An entity primarily generating passive income such as dividends, interest, royalties, or rents. Investments in passive entities generally do not count toward the 15% or 60% minimum investment thresholds under Sections 2044.03(a)(1)(i) and 2044.03(b)(1)(i).

- Mixed Entity: An entity generating both active and passive income, where at least 80% of gross income derives from active business operations on the island.

II. Contribution and Investment Guidelines

To promote financial stability and long-term investment, the Order mandates that contributions of “Assets in Kind” (such as stocks, securities, and notes) must remain within the fund for a minimum “reasonable period” of 24 months. If these assets are sold before the period expires, the resulting capital must be reinvested in eligible assets for the remainder of the 24-month term.

Notably, the Order expressly prohibits the contribution of real property as an eligible in-kind investment.

Furthermore, funds must ensure that cash equivalents do not exceed 20% of the total contributed capital.

III. Prevention of Capital Recycling

The Order restricts reinvestment of contributed capital in entities related to the accredited investor holding a 20% or greater interest, except for new business activities, operational expansion, or job creation. Each related investment must be supported by documentation demonstrating measurable economic impact, retained for OCIF and OIN review during the decree term. A minimum 24-month retention period is required to ensure effective use of funds in the intended operations.

IV. Investment Timing and Deduction

For the purposes of claiming tax deductions under Section 2042.03(d)(1) of the Code, the Order clarifies that an investment is only considered "invested" once the fund assigns the cash to specific eligible projects or assets.

Furthermore, it introduces the concept of "Net Contribution," which requires subtracting any loan or financing granted by the fund to the investor within 120 days of their contribution from the total amount eligible for a deduction.

&TaxLawyers

25/05/2026

U.S. TAX COURT DENIES PUERTO RICO RESIDENCY TO TAXPAYER UNDER US CODE PROVISIONS

On March 13, 2023, the United States Tax Court (Court) decided Scott Ayers v. Commissioner, Docket No. 5336-24, whether it addressed whether the petitioner qualified as a bona fide resident of Puerto Rico for purposes of excluding Puerto Rico-source income under Internal Revenue Code (IRC) 933.

I. Background

Mr. Ayers resided in Arizona from January through approximately June 2021, where he owned a home with his spouse through a revocable trust. In June 2021, he relocated to Puerto Rico, where he leased accommodations, obtained a driver’s license, and acquired personal property. He remained in Puerto Rico until the fall of 2022, at which point he moved to Japan due to family health circumstances and did not return thereafter.

During the 2021 taxable year, Mr. Ayers realized $933,782 in short-term capital gains, along with additional income consisting of an HSA distribution and interest income. None of these amounts were reported on his federal income tax return, which was filed after the extended due date.

II. Legal Analysis

Section 933 provides that income derived from sources within Puerto Rico is excluded from gross income for individuals who are bona fide residents of Puerto Rico “during the entire taxable year.” Courts have consistently interpreted this provision to deny the exclusion where residency begins mid-year.

Section 937 defines “bona fide resident” through a three-part test: (i) physical presence, (ii) tax home, and (iii) closer connection. Treasury Regulations further elaborate on these requirements and include a limited “year-of-move” exception, contingent upon continued residency for three subsequent taxable years.

We hereby highlight the Court’s analysis:

-Statutory Framework: The Court first applied the statutory framework, emphasizing that Section 933 requires bona fide residency for the entire taxable year. Because Mr. Ayers maintained a tax home in Arizona for approximately five months in 2021, he failed to satisfy Section 937(a)’s requirement that no tax home exist outside Puerto Rico during the taxable year.

The Court then evaluated the regulatory framework, including the year-of-move exception under Treas. Reg. 1.937-1(f). Although this provision can deem a taxpayer a bona fide resident in the year of relocation, it requires the taxpayer to remain a bona fide resident of the possession for the following three taxable years. Mr. Ayers’s relocation to Japan in 2022 and absence from Puerto Rico in 2023 and 2024 precluded satisfaction of this requirement.

- Objective Criteria: The Court further rejected arguments based on the taxpayer’s subjective intent to reside in Puerto Rico, holding that the statutory and regulatory framework relies on objective criteria rather than intent.

&TaxLawyers

19/05/2026

El Colegio de CPA invita a CPA, abogados y profesionales relacionados a participar de la XV Conferencia CPA-Abogados, un evento diseñado para discutir temas legales ycontributivos.

📅 Jueves, 28 de mayo
📅 Viernes, 29 de mayo
📍 Hotel Royal Sonesta, Isla Verde
⏰ Sesiones desde las 8:45 a.m.

Durante ambos días se ofrecerán conferencias sobre:

⚖️ Arbitraje comercial en acción: estrategia, procedimiento y ejecución
📌 Práctica y procedimiento administrativo ante el IRS: un enfoque comparado con el Departamento de Hacienda de Puerto Rico
📚 Análisis de jurisprudencia contributiva reciente
✅ Actualización de ética profesional comparada: CPA y abogados en Puerto Rico

Una excelente oportunidad para fortalecer conocimientos, compartir con colegas y mantenerse al día en temas clave para la práctica profesional.

📲 Para información y registro, accede al código QR incluido en la promoción o visita: colegiocpa.com

-Abogados

18/05/2026

DISTRICT OF PUERTO RICO DISMISSES CLAIMS ARISING FROM EURO PACIFIC BANK INVESTIGATION AND CLOSURE

In March 12, 2026, the United States District Court for the District of Puerto Rico (Court) decided Peter David Schiff v. IRS, No. 3:24-cv-01511, where the Court reviewed claims brought by Peter David Schiff arising from the closure of Euro Pacific International Bank.

I. Background

The Plaintiff, Peter David Schiff, initiated this action following the regulatory intervention and subsequent closure of Euro Pacific International Bank (Bank). The Bank was targeted by the "J5," a joint tax enforcement task force comprising the Internal Revenue Service (IRS) and the Puerto Rico Commissioner of Financial Institutions (OCIF). Plaintiff alleges that the Defendants conspired to obstruct a $17.5 million stock sale of the Bank, forcing a lower-value asset sale of $1.25 million during receivership.

Plaintiff further contends that former IRS Chief of Criminal Investigations, Jim Lee, and other individual IRS employees (Individual Defendants) disseminated false information and made defamatory statements at a press conference, implying Plaintiff’s involvement in tax evasion and money laundering.

Plaintiff asserted claims under 42 U.S.C. §1983, 42 U.S.C. §1985(3), Bivens v. Six Unknown Named Agents, and the Federal Tort Claims Act (FTCA) for tortious interference and defamation.

We hereby highlight the Court’s decision.

II. Legal Analysis

- Sovereign Immunity and Official-Capacity Claims: The Court agreed that, except for the Bivens claim, the complaint asserted claims against IRS officials only in their official capacities. As a result, the United States was the proper defendant for those claims. The Court held that sovereign immunity barred the claims because Schiff failed to identify any applicable statutory waiver permitting suit against the United States, the IRS, or federal officials acting in their official capacities under Section 1983, Section 1985(3), or Bivens.

The Court rejected Schiff’s attempt to rely on the Administrative Procedure Act and the Larson-Dugan doctrine because those arguments were undeveloped and unsupported. It also found that Schiff had effectively conceded the applicability of sovereign immunity and the substitution of the United States as the proper party for official-capacity claims.

- FTCA Deficiencies: The Court further held that Schiff’s tort claims for defamation and tortious interference were barred under the FTCA. In addition, Schiff admitted that he had not filed an administrative claim before commencing suit. That failure to exhaust administrative remedies provided an independent basis for dismissal. The Court found Schiff’s argument regarding substitution of the United States immaterial, because the underlying jurisdictional and exhaustion defects remained unresolved.

- Dismissal of the Bivens Claims: The Court independently addressed the remaining Bivens claims against the Individual Defendants in their personal capacities. Applying the "plausibility" standard established in Bell Atl. Corp. v. Twombly and Ashcroft v. Iqbal, the Court determined that the allegations were "threadbare" and "conclusory."

The Court found that Plaintiff failed to provide material facts demonstrating how the Defendants’ actions constituted an "unlawful seizure of property" under the Fourth Amendment or a deprivation of due process under the Fifth Amendment. Regarding the conspiracy allegations, the Court noted that merely asserting defendants acted "in concert" is insufficient without detailing the nature of the cooperation or how the conspiracy was "hatched."

&TaxLawyers

11/05/2026

TAX COURT HOLDS PROMISSORY NOTE CONTRIBUTED THROUGH DISREGARDED ENTITY PRODUCED ZERO BASIS FOR PARTNERSHIP AND PARTNER

On March 2, 2026, the United States Tax Court (Court) decided Continental Grand Limited Partnership v. Commissioner, Docket No. 859-22, where it addressed the interaction between the entity classification rules under the “check-the-box” regulations and the partnership basis rules governing property contributions.

I. Background

CSC Computer Sciences GmbH (CSC Germany),is a German holding company, wholly owned CSC Financial GmbH (CSC Financial), another German entity. On March 26, 2001, CSC Germany issued a promissory note to CSC Financial with a face value of approximately $610 million and a maturity amount exceeding $1.1 billion, reflecting deferred interest. The ultimate U.S. parent, Computer Sciences Corporation, guaranteed the note.

Shortly thereafter, CSC Financial contributed the note to Continental Grand Limited Partnership (Partnership) in exchange for a limited partnership interest. The Partnership, organized under Nevada law, leased computer equipment to affiliated entities within the corporate group.

More than one year later, on April 12, 2002, CSC Financial elected under Treasury Regulation 301.7701-3 to be treated as a disregarded entity separate from its owner, CSC Germany. The election was made retroactively effective March 23, 2001 (several days before the note was issued and contributed to the Partnership).

In March 2009, CSC Germany prepaid the note by transferring approximately $1.07 billion to the Partnership. On the same day, CSC Financial withdrew from the Partnership and received a distribution exceeding $1.08 billion.

Following examination of the Partnership’s 2009 tax return, the Internal Revenue Service issued a Notice of Final Partnership Administrative Adjustment (FPAA). The Commissioner determined that:

- CSC Germany’s adjusted basis in the promissory note at the time of contribution was zero;

- CSC Germany’s basis in its partnership interest immediately after the contribution was zero; and

- The Partnership’s basis in the note was likewise zero.

II. Court’s Analysis

A. Effect of the Disregarded Entity Election

The Court first addressed the impact of CSC Financial’s retroactive election to be treated as a disregarded entity under the check-the-box regulations. Under Treasury Regulation 301.7701-3(g)(1)(iii), when an entity elects to become disregarded, it is deemed to liquidate and distribute all assets and liabilities to its single owner.

Applying these rules, the Court held that CSC Financial was treated as having liquidated into CSC Germany effective March 23, 2001. Consequently, for federal tax purposes CSC Financial was merely a branch or division of CSC Germany at the time of the transactions.

As a result, the issuance of the promissory note by CSC Germany to CSC Financial was disregarded. The subsequent assignment of the note to the Partnership was therefore treated as if CSC Germany had contributed its own note directly to the Partnership.

The Court rejected the petitioner’s argument that this treatment impermissibly disregarded state-law property rights, explaining that state law determines the existence of legal rights, while federal tax law determines the tax consequences of those rights.

B. Basis Consequences of the Note Contribution

Section 722 provides that a partner’s basis in a partnership interest acquired by contributing property equals the contributing partner’s adjusted basis in the property at the time of contribution. Section 723 similarly provides that a partnership’s basis in contributed property equals the contributing partner’s adjusted basis in that property.

The key issue therefore became the adjusted basis of the promissory note in the hands of its maker, CSC Germany.

Relying on prior precedent, including VisionMonitor Software, LLC v. Commissioner, Dakotah Hills Offices Ltd. Partnership v. Commissioner, and Oden v. Commissioner, the Court reaffirmed the established rule that a taxpayer has no tax basis in its own promissory note. Because CSC Germany incurred no cost to create the note, its basis under Section 1012 was zero.

The Court rejected arguments that the obligation embodied in the note constituted “cost” under Ssection 1012, distinguishing Commissioner v. Tufts, which involved borrowing used to acquire property. In contrast, the note here merely evidenced CSC Germany’s own obligation and did not represent consideration paid to acquire property.

C. Partnership Basis Determination

Because CSC Germany’s adjusted basis in the note was zero, Section 722 required that CSC Germany’s basis in its partnership interest following the contribution also be zero. Similarly, under Section 723, the Partnership’s basis in the note was zero.

&TaxLawyers

04/05/2026

YA GLOBAL V. COMMISSIONER: APPELLANTS URGE THIRD CIRCUIT TO REVERSE TAX COURT ON USTB CHARACTERIZATION, DEALER STATUS, AND WITHHOLDING TAX PENALTIES

In its February 24, 2026 reply brief to the U.S. Court of Appeals for the Third Circuit (Docket No. 25-2026), YA Global Investments, LP (formerly Cornell Capital Partners) and related Yorkville entities seek reversal of an adverse U.S. Tax Court (Court) decision. The appeal centers on whether the fund’s activities carried out through its investment manager, Yorkville Advisors, created a U.S. trade or business (USTB) and effectively connected income (ECI) for foreign partners.

I. No USTB or ECI: Investor Activity Mischaracterized as Services

Appellants contend the Court’s USTB finding rests on a legal and evidentiary inversion treating routine fund-manager conduct (sourcing opportunities, conducting due diligence, negotiating terms, and monitoring positions) as “personal services” allegedly rendered to portfolio companies, rather than services rendered to YA Global as the client. The brief argues the record shows portfolio companies retained their own counsel and advisors, and transaction documents included disclaimers that Yorkville/YA Global were not acting as the companies’ advisors. Appellants maintain the Tax Court inferred “services” from the existence of amounts labeled “fees,” but that labeling cannot, as a matter of law, prove payment for services rather than cost-of-capital economics typical in financing arrangements.

On standard of review, appellants argue the “trade or business” characterization is ultimately a legal conclusion when drawn from undisputed facts and therefore warrants de novo review, not deference framed as clear-error fact review.

Trading Exceptions Under § 864(b)(2)

Appellants further argue that, even assuming extensive U.S.-based activity, the trading safe harbors apply because the fund’s conduct fits “effecting transactions in stocks or securities” and closely related activities under Treasury regulations. They dispute the Commissioner’s “waiver/forfeiture” arguments and assert Yorkville’s office should not be attributed to YA Global where Yorkville qualifies as an independent agent; they also argue YA Global was not a dealer with “customers,” defeating the IRS’ attempt to negate the Section 864(b)(2)(A)(ii) trading exception.

II. Not a Dealer Under Section 475

The reply brief challenges the Court’s conclusion that YA Global was a “dealer in securities” subject to mark-to-market under Section 475. Appellants argue the Tax Court improperly expanded “customers” to mean any counterparty, which would sweep ordinary investing or trading into dealer treatment. They emphasize that dealer status turns on the nature of profits (e.g., market-making/customer-facing activity), and that buying securities for investment/trading gains does not create “customers” merely because transactions are frequent or structured.

III. Penalties: Malpractice Suit as an Improper Proxy for Lack of Reasonable Cause

Appellants argue the Court committed legal error by using a later-filed malpractice lawsuit against an advisor to negate reasonable cause. The brief emphasizes the court found timely professional advice supported the no-USTB position and that the issue was uncertain, yet still sustained penalties based on inferences drawn from litigation filed after receipt of FPAAs to preserve claims.

IV. Statute of Limitations: Forms 1065 as Adequate Substitutes

Finally, appellants argue assessments for 2006 and 2007 are time-barred because the limitations period began when YA Global filed Forms 1065, which allegedly contained the same underlying information needed to compute Section 1446 withholding (Form 8804). They also contend extensions executed later could not revive already-expired periods and that the IRS’ attempt to broaden extension language post-expiration is ineffective.

&TaxLawyers

27/04/2026

SUPREME COURT PETITION SEEKS REVIEW OF CIRCUIT SPLIT ON FRAUD EXCEPTION TO IRS ASSESSMENT LIMITATIONS PERIOD PROCEDURAL POSTURE

On February 17, 2026, Stephanie Murrin (‘Taxpayer’) filed a certiorari petition in the case Stephanie Murrin v. Commissioner, Docket No. 24-2037, requesting the United States Supreme Court to resolve whether the “false or fraudulent return” exception in Section 6501(c)(1) of the United States Internal Revenue Code (Code) permits assessment beyond the ordinary three-year period in Section 6501(a) based solely on a return preparer’s fraudulent intent—when the taxpayer neither intended to evade tax nor knew of wrongdoing.

The case concerns returns filed between 1993 and 1999. The parties stipulated that Murrin’s preparer inserted false or fraudulent entries with intent to evade tax, but that Murrin herself acted in good faith and lacked knowledge of the fraud. Murrin conceded the underlying unpaid tax but challenged the timeliness of the IRS’s deficiency determination under Section 6501(a). The notice of deficiency asserted approximately $65,318 in tax and $13,064 in accuracy-related penalties, with accrued interest allegedly exceeding $250,000—placing total exposure above $328,000 for decades-old tax years.

I. Statutory Framework

Section 6501(a) generally requires the IRS to assess tax within three years after a return is filed. Congress created exceptions in Section 6501(c), including Section 6501(c)(1), which removes any time limit “[i]n the case of a false or fraudulent return with the intent to evade tax,” allowing assessment “at any time.” The petition emphasizes that the statute does not expressly identify whose “intent to evade tax” is required—creating the interpretive dispute. The petition also situates Section 6501 within the broader assessment regime in Section 6201(a) and related definitional provisions.

II. Taxpayer’s Arguments

- Conflicting Appellate Approaches: The petition frames the dispute as a direct split between the Third Circuit and the Federal Circuit. The Federal Circuit, in BASR Partnership v. United States, 795 F.3d 1338 (Fed. Cir. 2015), held that Section 6501(c)(1) suspends the limitations period only when the taxpayer acted with intent to evade tax. The petition argues this approach aligns with historical understanding, related Code provisions addressing fraud, and the origins of the limitations and fraud-penalty language in the Revenue Act of 1918.

By contrast, the Third Circuit held that Section 6501(c)(1) is “agnostic” as to whose intent matters and that the unlimited period can be triggered by a third party’s fraudulent intent even if the taxpayer is blameless. The Third Circuit relied on textual and grammatical considerations, including passive-voice structure, and reasoned Congress did not expressly limit intent to the taxpayer. Although acknowledging Murrin’s reading as “fair” and recognizing her frustration, the Third Circuit concluded the statute permits an “indefinite limitations period” where a return is fraudulent and someone intended to evade tax.

- Claimed Importance and Vehicle Considerations: The petition argues the issue is exceptionally important because it determines whether innocent taxpayers can face effectively perpetual exposure based on concealed preparer misconduct and because evidentiary burdens become severe with the passage of time. It also stresses uniformity concerns: taxpayers able to prepay and litigate in the Court of Federal Claims may obtain the Federal Circuit’s more taxpayer-protective rule, while Tax Court litigants in circuits adopting the Third Circuit’s approach may face open-ended assessment. The petition asserts the case is an ideal vehicle because the facts are stipulated and the appeal turns on a single, outcome-determinative question of statutory interpretation.

&TaxLawyers

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