## Facts

- Two taxpayers purchased KPMG’s “Short Option Strategy” tax shelter in December 2000 to reduce 2000–2001 federal income tax liabilities.
- After IRS Notice 2000-44, the IRS served KPMG administrative summonses seeking identities of clients involved in covered transactions and related records.
- KPMG later informed the IRS and the taxpayers that the taxpayers’ 2000 transaction was responsive to a summons and produced transaction information, initially omitting the taxpayers’ names.
- The taxpayers asserted the tax-practitioner privilege under 26 U.S.C. § 7525 and directed KPMG not to waive it, then sued KPMG in the Northern District of Texas seeking to block disclosure of their identities.
- Concerned the three-year assessment limitations period under 26 U.S.C. § 6501 would expire, the IRS requested the taxpayers’ consent to extend the period; the taxpayers refused.
- The United States intervened in the Texas action to protect its ability to assess tax before the limitations period expired.

## Issues

1. Whether a federal district court has authority to apply equitable tolling to extend the three-year assessment limitations period in 26 U.S.C. § 6501.
2. Whether provisions such as 26 U.S.C. § 7402(a) or general equitable principles permit judicial extension of § 6501 beyond the exceptions Congress expressly provided.

## Decision

- The Fifth Circuit reversed the district court’s order equitably tolling § 6501.
- The court held § 6501’s limitations period cannot be extended through judge-made equitable tolling absent clear congressional authorization.
- The court rejected the government’s reliance on § 7402(a) as a basis to extend the limitations period and rejected equitable “clean hands” arguments as a substitute for statutory authority.

## Legal Principles

- Time limits tied to the federal tax assessment scheme and the government’s authority to collect taxes may function as jurisdictional constraints, limiting courts’ power absent statutory authorization.
- Where Congress specifies detailed statutory extensions and suspensions (including provisions within §§ 6501 and 6503), courts should not add additional, non-statutory tolling mechanisms.
- Broad remedial grants (such as § 7402(a)) authorize enforcement of existing rights but do not permit courts to rewrite or extend limitations periods Congress imposed.

## Conclusion

The Fifth Circuit held that I.R.C. § 6501’s three-year assessment period is not subject to equitable tolling, reversing a district court order that sought to preserve the IRS’s assessment time through equitable means rather than the Code’s express extension and suspension provisions.


Doe 1 v. KPMG LLP, 398 F.3d 686 (5th Cir. 2005)