Second Circuit - Statute of limitations when taxpayer’s accountant filed fraudulent employment tax returns 

March 1: The U.S. Court of Appeals for the Second Circuit today reversed a decision of the Tax Court, and held that under section 6501(c)(1), the IRS could collect employment taxes at any time when the taxpayer’s accountant had, pursuant to a power of attorney, filed fraudulent employment tax returns with the intent to evade tax or willfully attempted to defeat or evade tax. City Wide Transit, Inc. v. Commissioner, 12-1040-ag (2d Cir. March 1, 2013)

Background

The IRS sought to collect unpaid employment tax from the taxpayer for seven quarters. The employment taxes were not remitted because the taxpayer’s accountant had embezzled the funds and had filed fraudulent employment tax returns to cover his actions.


The Tax Court in 2011 held [PDF 26 KB] that the IRS had not shown by clear and convincing evidence that the accountant had filed fraudulent returns with the intent to evade tax or willfully attempted to defeat or evade tax, and thus that the limitations periods for assessment were not extended under either section 6501(c)(1) or (2). The Tax Court concluded that the three-year limitations period of section 6501(a) controlled the timeliness of the assessments of the taxpayer’s additional taxes.

Second Circuit

In today’s decision [PDF 30 KB], the Second Circuit reversed the Tax Court and held that the accountant who had filed fraudulent employment tax returns on behalf of the taxpayer/company, so as to embezzle money that otherwise would be owed to the IRS, had intentionally evaded taxes and that the IRS could collect these taxes at any time.




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