Tax Court Sustains Accuracy-Related Penalty for Offshore Accounts, Rejecting Taxpayer's QAR, Statute of Limitations, and § 6751(b) Arguments (9/1/22)

This blog will alert readers of a new Tax Court opinion, Lamprecht v. Commissioner, T.C. Memo. 2022-91, involving the accuracy-related penalty for failure to report income from foreign accounts. (The opinion may be retrieved at docket entry 181 from the docket entries, here.) I will set up my discussion from the syllabus for the key points decided (on the value of the syllabus see point 6 at the end of this blog):

            Ps are citizens of Switzerland who lawfully resided in the United States, where P–H worked as an investment consultant managing investments for himself and his clients. Ps filed U.S. income tax returns for 2006 and 2007 which understated their income in both years by omitting income that Ps treated as foreign sourced.

            In 2008 the IRS issued to Swiss Bank a John Doe summons which sought to discover the identities of U.S. taxpayers using foreign entities and Swiss bank accounts to avoid reporting income on their U.S. tax returns.

            In 2010 Ps filed amended returns for 2006 and 2007 on which they reported the previously omitted income. Upon examination of Ps’ 2006 and 2007 returns, R determined an accuracy-related penalty under I.R.C. § 6662 against Ps for each year on the basis of the tax attributable to the income omitted from the original returns, and issued to Ps a notice of deficiency. Ps timely filed a petition to challenge the penalty determinations in the notice of deficiency, arguing (1) that the IRS failed to comply with I.R.C. § 6751(b)(1) requiring written supervisory approval of penalties, (2) that their amended returns for 2006 and 2007 are “qualified amended returns” within the meaning of Treas. Reg. § 1.6664-2(c)(3), [*2] precluding penalty liability, and (3) that assessment of the accuracy-related penalties for 2006 and 2007 is barred by the statute of limitations under I.R.C. § 6501.

            Held: The amended returns are not “qualified amended returns” under Treas. Reg. § 1.6664-2(c)(3)(i)(D) because they were filed after the service of a John Doe summons.

            Held, further, assessment of the accuracy-related penalties is not barred by the statute of limitations under I.R.C. § 6501 because the limitations period was suspended by the service of the John Doe summons pursuant to I.R.C. § 7609(e)(2).

            Held, further, the IRS complied with the written supervisory approval requirement of I.R.C. § 6751(b)(1).

            Held, further, Ps are liable for the I.R.C. § 6662 accuracy-related penalties as determined by R for the 2006 and 2007 years.

JAT Comments:

1. The facts are not good for the Lamprechts.  I was surprised that, although asserting the civil fraud penalty in the answer, the IRS later conceded the civil fraud penalty. (Slip Op. 3 n. 2.)  No explanation is given for the concession. Later in the opinion (Slip Op. 29 n22), the Court says in addressing the statute of limitations issue:

The Commissioner contends—but does not advance in his motion for summary judgment—that the period of limitations for assessment is open for the Lamprechts’ 2006 and 2007 years under section 6501(c)(1) because of fraudulent positions taken on their original returns. The Commissioner reserves this argument for trial should his motion for summary judgment be denied. The Lamprechts’ cross-motion asks us to hold that fraud is absent and does not extend the period; but since we hold for the Commissioner on other grounds, we need not reach this fraud issue.

If the IRS were holding open the fraud issue for statute of limitations purposes, it is not clear why it conceded the civil fraud penalty issue. Perhaps there was no proper written supervisor approval (either at the answer stage or earlier in the audit stage if the civil fraud penalty was raised).  Note also that the fraud issue also is presented in the statute of limitations discussion (see par. 4, below).

2. The only mention of the FBAR is that, when filing amended returns in December 2010, the Lamprechts “concurrently filed Forms TD F 90-22.1, “Report of Foreign Bank and Financial Accounts” (“FBAR”), for 2006 and 2007 to report previously undisclosed foreign bank accounts.”  (Slip Op. 9.) I think that can be read (not must be read) as meaning that the Lamprechts may have timely or perhaps even earlier delinquently filed FBARs for the later years. Hence, although the facts presented in the opinion certainly would indicate that, had the statute been open for FBAR willful penalties, the Lamprechts probably would have (should have) drawn the FBAR willful penalty.

3. There is a long discussion about the parties’ spat as to whether proper written supervisor approval had been obtained under § 6751(b). (Slip Op. 17-21.)  The Court decides proper approval had been obtained.

4. There is an even longer discussion of whether the amended returns were qualified amended returns  ("QAR") qualifying for penalty relief under the regulation. (Slip Op. 21-28.)  The Lamprecht’s counsel made some creative arguments that ultimately failed. (Note that there is no QAR relief for amended returns where the original returns underreported due to fraud. Reg. § 1.6664-2(c)(2); so that is another context where, if the IRS did not otherwise prevail on the QAR issue, it might have raised fraud.)

 5. The Court also held against the Lamprechts’ arguments on whether the UBS John Doe Summons suspended the statute of limitation. (Slip Op. 29-34.)

6. Many lawyers were trained that the opinion is key without consideration of the summary, but I think in an opinion like this, the syllabus is quite valuable to summarize what he did in the opinion and maybe, where appropriate, even add nuance. See Supreme Court Opinion Syllabus as Persuasive Authority? (Federal Tax Procedure Blog 2/8/21), here.

This blog is cross-posted on the Federal Tax Procedure Blog, here.