D.C. Circuit Affirms Tax Court's Holdings on Written Supervisor Approval, Qualified Amended Return, and Statute of Limitations on UBS JDS (4/25/24)

In Lamprecht v. Commissioner, ___ F.4th ___ (D.C. Cir. 4/23/24), D.C. Cir. here and GS here, the Court affirmed the Tax Court in Lamprecht v. Commissioner, T.C. Memo. 2022-91, here. See Tax Court Sustains Accuracy-Related Penalty for Offshore Accounts, Rejecting Taxpayer's QAR, Statute of Limitations, and § 6751(b) Arguments (Federal Tax Procedure Blog 9/1/22), here. In so doing, the Court (Judge Walker) steps through the arguments and the resolution in a crisp straightforward opinion.

The background discussed in the opinion is that the IRS issued a John Doe Summons to UBS in 2008 (which essentially set off the IRS and DOJ foreign account initiative). UBS did not immediately reply with full and complete response. As a result, the civil statute of limitations for persons within the scope of the summons (U.S. person account holders) was suspended and did not pick up until the summons was resolved. Suspension of Statute of Limitations From the UBS John Doe Summons (Federal Tax Crimes Blog 1/26/14), here.

The opinion holds in the Court’s outline format:

I. The IRS Complied with 26 U.S.C. § 6751(b)(1)

A. It Doesn’t Matter When (or Whether) a Supervised
Tax Examiner Signs the Approval Required by
§ 6751(b)(1)’

B. The IRS May Use a Form 5345-D to Comply with
§ 6751(b)(1)

C. The Tax Court’s Refusal to Exclude the Forms 5345-D
from Evidence Was Not an Abuse of Discretion

II. The Lamprechts’ Corrected Returns Did Not Protect
Them from Penalties [QAR Issue]

A. The [UBS] Summons Was Legal

B. The Summons Relates to a Benefit Claimed on the
Lamprechts’ Original Tax Returns

III. The Penalty Assessments Were Not Too Late

A. The [UBS] Summons Was Not Resolved in August 2009

B. The [UBS] Summons Was Legal (Again)

 JAT Notes:

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; or GS 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.

On Qualified Amended Returns and Avoiding Amnesty Penalty Costs (10/16/13)

I picked up today a recent post on the Tax Appellate Blog, Miller & Chevalier's offering to the world on things tax (at least the appellate subset of things tax).  Miller & Chevalier is a premier tax firm (see website, here) and through the Tax Appellate Blog pundits in this area.  The particular blog to which I direct my attention is this one:  Oral Argument Scheduled in Bergmann (Tax Appellate Blog 10/15/13), here.

Now, what is Bergmann about such that anyone other than the Bergmanns and the Government should even care about oral argument in the case?  First the background.  From my Federal Tax Procedure book (with bold face emphases on the particularly relevant portions):

2. Penalty Base - Tax Understatement; Qualified Amended Return (“QAR”). 

The accuracy related penalties apply a penalty rate (20% or 40%) to a penalty base which is the tax underpayment.  If a taxpayer reports $100 of tax and upon audit is determined to have owed $150, the underpayment is $50.  Some portion or all of the underpayment may be subject to the accuracy related penalty. 

I mentioned earlier in discussing amended returns that there is a special category of amended return called a qualified amended return (“QAR”).  The QAR permits a taxpayer to treat the amount of tax reported on the QAR as the tax reported on an original return so that the accuracy related penalty will not apply.  In the example above, if the taxpayer files a QAR reporting the correct $150 tax liability after reporting only $100 on the original return, the reporting of the correct $150 liability will avoid the accuracy related penalty.  QAR relief does not apply, however, as to the amounts originally underreported attributable to fraud.\ 

What are the circumstances in which the taxpayer may achieve the benefit of the QAR?  A QAR is an amended return filed after the original due date of the return (determined with extensions) but before any of the following events: (i) the date the taxpayer is first contacted for examination of the return; (ii) the date any person is contacted for a tax shelter promoter examination under § 6700; (iii) as to a pass-through entity item, the date the entity is first contacted for examination; (iv) the date a John Doe Summons is issued to identify the name of the taxpayer; and (v) as to certain tax shelter items, the dates of certain IRS initiatives published in the Internal Revenue Bulletin.  Undisclosed listed transactions are excluded.   

The QAR is a formal procedure to achieve a result in the civil penalty arena that a “voluntary disclosure” – often effected by amended return(s) – does in the criminal tax enforcement arena in generally the same relevant equitable circumstance – i.e., the IRS has not yet started a criminal investigation against the taxpayer or a related proceeding (e.g., § 6700 investigation or John Doe Summons) likely to lead to the taxpayer.  These programs that permit taxpayers to avoid penalties – civil in the case of a qualified amended return and criminal in the case of the voluntary disclosure practice – are designed to encourage taxpayers to get right voluntarily with the IRS.  The programs produce significant additional revenue that might otherwise escape the IRS net; in the circumstances, foregoing the penalties is consistent with overall revenue enforcement policies.  I discussed the criminal voluntary disclosure policy earlier in this book.