S-4964-119
Read twice and referred to the Committee on Finance.
Sponsored by Roger Marshall (R-KS)
What it does
This bill would amend the Internal Revenue Code to clarify that the unlimited statute of limitations for fraudulent tax returns applies only when the taxpayer themselves intended to evade taxes. It does this by inserting the words "by the taxpayer" into Section 6501(c)(1), which currently allows the IRS to assess taxes at any time on a fraudulent return without specifying whose fraud triggered the exception. The change would apply to IRS assessments and proceedings begun after the bill's enactment date.
Who benefits
Taxpayers whose returns were filed fraudulently by a paid tax preparer without the taxpayer's knowledge or participation — a group the IRS estimates numbers in the tens of thousands annually. Taxpayers who have already resolved their tax obligations but remain exposed to unlimited IRS assessment due to preparer fraud. Tax attorneys and accountants who represent clients in preparer fraud disputes. Taxpayers broadly, who would gain a clearer and more predictable statute of limitations.
Who is hurt
The IRS, which would lose the ability to pursue unlimited-window assessments against taxpayers whose returns were fraudulently prepared, potentially reducing recoverable tax revenue in complex preparer fraud cases. Legitimate tax collection efforts could be constrained in cases where distinguishing taxpayer intent from preparer intent is difficult. Taxpayers who were complicit in preparer fraud schemes may gain a procedural shield if intent is difficult to prove.
Supporters argue
Supporters argue that current law punishes innocent victims twice — first by a dishonest preparer, and then by leaving them permanently exposed to IRS assessment with no statute of limitations protection. They contend that the unlimited assessment window was designed to prevent deliberate tax evasion by taxpayers, not to penalize people who trusted a professional and were deceived, and that the two-word fix aligns the law with its original intent while protecting taxpayers who acted in good faith.
Opponents argue
Opponents argue that preparer fraud schemes are often complex and that taxpayer complicity can be difficult to disentangle from preparer misconduct, meaning the bill could inadvertently shield partially culpable taxpayers from legitimate IRS enforcement. They contend that closing the unlimited assessment window in preparer fraud cases may reduce the IRS's ability to fully recover unpaid taxes in large-scale fraud operations, shifting the burden of those losses to compliant taxpayers and the federal treasury.