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D.C. Circuit Affirms Penalties for Failing to Report Foreign Bank Accounts

(Parker Tax Publishing May 2024)

The D.C. Circuit affirmed the Tax Court and held that a couple's amended tax returns, which reported foreign bank account information not disclosed on their original returns, were not "qualified amended returns" under Reg. Sec. 1.6664-2(c)(3), and the couple is thus liable for accuracy-related penalties relating to the omission of the foreign bank account information on their original returns. The court also held that the six-year statute of limitations for substantial omissions of income was suspended under Code Sec. 7609(e) until a John Doe summons, which had been issued in the case, was finally resolved by the IRS's withdrawal of the summons. Lamprecht v. Comm'r, 2024 PTC 129 (D.C. Cir. 2024).


Johannes Lamprecht and his wife, Linda, are Swiss citizens. In 2006 and 2007, the couple lived in the United States. Each year they timely filed their tax returns in April of 2007 and April 2008 and each year they underreported their taxable income by telling the IRS they had no foreign bank accounts when, in fact, they had millions in a Swiss bank called UBS.

In 2008, the IRS served a John Doe summons on UBS requesting information about a class of unknown taxpayers who might have failed to report the existence of taxable income in UBS accounts. Eventually UBS agreed to give the information to Switzerland, which agreed to give it to the United States. By November 2010, the exchange of information was complete, and the United States formally withdrew the John Doe summons. The next month, the Lamprechts amended their tax returns for 2006 and 2007 and reported taxable income in the previously undisclosed UBS accounts, which increased their tax liability by approximately $2.5 million. The couple paid these back taxes.

In January 2015, more than six years after filing their 2006 and 2007 tax returns, the Lamprechts received an IRS notice of deficiency for their 2006 and 2007 tax returns assessing about $500,000 in accuracy-related penalties under Code Sec. 6662. An IRS tax examiner made the initial determination and then submitted a Form 5345-D, Examination Request - ERCS (Examination Returns Control System) Users, to his immediate supervisor. Each form stated an intent to assess an "accuracy penalty" on the Lamprechts and each form was signed by the supervisor.

Under Code Sec. 6662(a), a 20 percent penalty applies to substantial understatements of tax which is defined as the greater of 10 percent of the tax or $5,000. Under Code Sec. 6662(d)(2)(A), a substantial understatement is determined by reference to "the amount of the tax imposed which is shown on the return." Reg. Sec. 1.6664-2(c)(2) provides that the amount shown as the tax on a return includes an amount shown as additional tax on a "qualified amended return" as defined in Reg. Sec. 1.6664-2(c)(3). Thus, if the Lamprechts' amended returns were "qualified amended returns," then they would not be liable for an underpayment of tax. Under Reg. Sec. 1.6664-2(c)(3)(i), a "qualified amended return" must be filed before the date on which the IRS serves a John Doe summons relating to the tax liability of a person, group, or class that includes the taxpayer with respect to an activity for which the taxpayer claimed any tax benefit on the return directly or indirectly.

Code Sec. 6501(e)(1)(A) provides a six-year statute of limitations for substantial omissions from gross income. However, Code Sec. 7609(e) suspends the limitations period if a summons was issued but remains unresolved. Under Reg. Sec. 301.7609-5(e)(3), a "final resolution" with respect to a summoned party's response to a third-party summons occurs when the summons is fully complied with and all appeals or requests for further review end.

The Lamprechts brought their case to the Tax Court where they argued that they were not liable for the penalties because the IRS had not complied with the written supervisory approval requirement of Code Sec. 6751(b)(1) and because their amended returns were "qualified amended returns" which cured the errors on the original return. They also argued that the assessment of the penalties was barred by the statute of limitation. In response, the IRS noted that it had complied with the requirements of Code Sec. 6751(b)(1) and that the John Doe summons was served on UBS in July 2008 - long before the Lamprechts filed their amended returns in December 2010 and thus the return was not a qualified amended return. The IRS also observed that, under Code Sec. 7609(e), the six-year statute of limitations was suspended until the final resolution of the UBS John Doe summons which occurred when the IRS formally withdrew the summons in November 2010.

In Lamprecht v. Comm'r., T.C. Memo. 2022-91, the Tax Court held that the Lamprechts' amended returns were not "qualified amended returns" because they were filed after the service of a John Doe summons. The court further held that assessment of the penalties was not barred by the statute of limitations because the limitations period was suspended by the service of the John Doe summons under Code Sec. 7609(e)(2). In addition, the court held that the IRS complied with the written supervisory approval requirement of Code Sec. 6751(b)(1).

The Lamprechts appealed to the D.C. Circuit Court and made three arguments as to why the penalty did not apply: (1) the IRS's assessment did not comply with the supervisory approval in Code Sec. 6751(b)(1); (2) the amended returns filed were "qualified amended returns"; and (3) the statute of limitations barred the IRS's penalty assessments.

According to the Lamprechts, a form approving their tax penalty was signed by a tax examiner after it was signed by the examiner's supervisor, and this meant that the IRS had not proven that it complied with Code Sec. 6751(b)(1). The Lamprechts also argued that the IRS may not use a Form 5345-D to prove that a supervisor complied with Code Sec. 6751(b)(1) or if it is ever acceptable, the tax examiners did not fill out their particular Forms 5345-D with enough specificity to explain which of several accuracy penalties would be assessed.

With respect to their argument that their amended returns were "qualified amended returns," the couple said that the John Doe summons was illegal because it was issued only to extend the relevant statute-of-limitations period, so it was not issued for a legitimate purpose, and thus it didn't prevent the couple from filing "qualified amended returns." The couple also argued that the John Doe summons was not issued with respect to an activity for which they claimed any tax benefit on the return directly or indirectly and thus the summons did not disqualify their corrected returns from the category of "qualified amended returns" that protected them from penalties.

Finally, with respect to their statute of limitations argument that the statute of limitations bars assessment of a penalty, the Lamprechts argued that the final resolution of the John Doe summons occurred in August 2009 - or alternatively that the summons was illegal and thus never effective.


The D.C. Circuit Court affirmed the Tax Court and granted summary judgment to the IRS. With respect to the Lamprechts' contention that the IRS had not met the requirements of Code Sec. 6751(b)(1), the court found their arguments to lack merit. Under Code Sec. 6751(b)(1), the court said, it didn't matter if the tax examiner signed the form approving the tax penalty after it was signed by the examiner's supervisor because it only matters that the supervisor signed the form.

While the court found the couple's argument about the Forms 5345-D not being filled out with enough specificity to be intriguing, it concluded that the couple did not preserve it because, in the Tax Court, they made only a fleeting and skeletal reference to it in their reply to their own motion for summary judgment.

The court also rejected the Lamprechts' argument that they had filed "qualified amended returns" because, the court noted, the amended returns were filed after a John Doe summons sought information on a class of taxpayers who did exactly what the Lamprechts did - use UBS accounts to underreport their taxable income. The court rejected their arguments that the summons was illegal and was not issued with respect to an activity for which the couple claimed any tax benefit on the return directly or indirectly. The couple received a benefit, the court said, when they answered "no" to the question of whether they had a financial account in a foreign country because that misrepresentation allowed them to avoid about $2.5 million in taxes.

With respect to the statute of limitations issue, the court concluded that the John Doe summons changed the calculation of the timing of the statute of limitations. If a summons goes unresolved for at least six months, the limitations period is suspended for any person with respect to whose liability the summons is issued. The suspension, the court noted, runs from six months after the summons's service until the final resolution of such response. The court concluded that the "final resolution" was in November 2010, and thus the penalties were timely.

For a discussion of the written supervisory approval requirement under Code Sec. 6751(b)(1), see Parker Tax ¶262,195. For a discussion of qualified amended returns, see Parker Tax ¶250,165.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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