In the Tax Court case, Allen v. Commissioner, the IRS sought to invoke § 6501(c)(1)'s unlimited limitations period to assess tax on a tax return where the tax preparer claimed false and fraudulent deductions, unbeknownst to the taxpayer. 128 T.C. 37, 38 (2007). After conducting a limited analysis of the text of § 6501(c)(1), the Tax Court concluded that a tax preparer could supply the necessary intent to evade tax. Id. at 42.

The sole question before the Court is the same one we decided in Allen v. Commissioner, 128 T.C. 37 (2007): whether section 6501(c) applies only where a taxpayer herself has filed a false or fraudulent return with the intent to evade tax. The Code contains no such limitation, and we will adhere to our precedent.

Petitioners contend that the assessments are time barred by the three-year period of limitations of section 6501(a). Relying on Allen v. Commissioner, 128 T.C. 37 (2007), respondent counters that the limitations period remains open under section 6501(c)(1) because petitioners' return preparer, Duane Howell, prepared each return falsely or fraudulently with the intent to evade tax. Accordingly, we must decide whether respondent has proved clearly and convincingly that petitioners' returns were prepared falsely or fraudulently with the intent to evade tax. Unless otherwise indicated, section references are to the Internal Revenue Code of 1986, as amended and as in effect for the years in issue, and Rule references are to the Tax Court Rule of Practice and Procedure.

Sec. 6501(c). In Allen v. Commissioner, 128 T.C. 37 (2007), we held that, for purposes of section 6501(c)(1), the limitations period remains open indefinitely regardless of whether it was the taxpayer or the taxpayer's tax return preparer who had the intent to evade tax. Section 6501(c)(2), however, was not at issue in Allen. See supra note 9.

Alternatively, respondent argues that Mr. Carstensen, on behalf of petitioner, acted with the requisite fraudulent intent in his preparation and filing of petitioner's returns for the audit years. He cites Allen v. Commissioner, 128 T.C. 37, 40-42 (2007), which holds that an underreporting of taxes attributable to the return preparer's (rather than the taxpayer's) fraud is sufficient to invoke the application of section 6501(c)(1). Petitioner disagrees with both arguments.

The IRS answered and alleged that the fraud exception to the three-year window applied because the return preparer had fraudulently prepared Taxpayers’ returns with intent to evade tax. The IRS relied on the Tax Court’s decision in Allen v. Commissioner , 128 T.C. 37 (2007), to support its reading of the fraud exception. In Allen , the Tax Court held that the fraud exception is triggered, and the three-year window suspended, by the return preparer’s fraudulent intent.

“Accordingly, taking [that obligation] into account, we conclude that the limitations period for assessing [the taxpayer's] taxes is extended if the taxes were understated due to fraud of the preparer.” Browning v. Comm'r, 102 T.C.M. (CCH) 460, 2011 WL 5289636, at *13 n. 14 (2011) (quoting Allen v. Comm'r, 128 T.C. 37, 40, 2007 WL 654357, at *40 (2007)). This makes intuitive sense because “the special disadvantage to the Commissioner in investigating fraudulent returns is present if the income tax return preparer committed the fraud that caused the taxes on the return to be understated.”

Jackson Hewitt is correct that under the tax laws a taxpayer remains legally responsible for his own taxes and cannot escape liability by blaming his tax preparer for an erroneous return. See Allen v. Comm'r of Intern. Rev., 128 T.C. 37, 41 (T.C. 2007). This does not mean, however, that the taxpayer cannot not state a breach of contract claim against his tax preparer for the preparation of an erroneous or inaccurate return.

IQH alleges that it informed its certified public accountant (CPA) of its intention to waive the carryback period each year between 2010 and 2013 but that the CPA mistakenly failed to check the box on line 11 of each year's Schedule K. However, this Court has repeatedly charged taxpayers with constructive knowledge of the contents of their returns and with the ultimate responsibility for reviewing those returns before filing. See, e.g., Allen v. Commissioner, 128 T.C. 37, 41 (2007) ("Taxpayers are charged with the knowledge, awareness, and responsibility for their tax returns."). Therefore, even if IQH were to present convincing evidence of scrivener's errors, we would decline to equitably reform the Forms 1120 in question.

Sec. 6501(c)(1). In Allen v. Commissioner, 128 T.C. 37, 42 (2007), the Court held that section 6501(c) indefinitely extends the period of limitations on assessment in the case of a false or fraudulent return, even though it is the preparer and not the taxpayer who intended to evade tax. The definition of fraud for purposes of the section 6501(c) period of limitations on assessment is the same as the definition of fraud for purposes of the section 6663 fraud penalty.