Johannes Lamprecht et al. v. Comm. DC District Court, No. 22-1308 (Apr. 23, 2024)

Johannes and Linda Lamprecht are Swiss citizens who lived in the United States in 2006 and 2007. They underreported their taxable income for those years by failing to disclose millions of dollars held in Swiss UBS bank accounts. In 2008, the US served a “John Doe” summons on UBS requesting information about unknown taxpayers who may have failed to report taxable income in UBS accounts. In 2009, agreements were reached for UBS to provide the information to Switzerland, which would then give it to the US. In Dec. 2010, after the information exchange was complete, the Lamprechts amended their 2006 and 2007 tax returns to report the previously undisclosed income, resulting in $2.5 million in additional taxes. The IRS later assessed $500,000 of penalties against the Lamprechts for substantial understatement of income tax.

Were amended returns qualified? The key legal issue was whether the Lamprechts’ amended returns qualified as “qualified amended returns” that would shield them from penalties. Under §1.6664-2(c)(3)(i)(D)(1), a return does not qualify if a John Doe summons was issued “with respect to an activity for which the taxpayer claimed any tax benefit on the return directly or indirectly”. The Lamprechts argued the summons was illegal because it was issued solely to extend the statute of limitations. They also contended the summons did not relate to a tax benefit claimed on their original returns. The court rejected both arguments, finding the summons had a legitimate purpose and related to the tax benefit of underreporting income. The court cited precedents including Lamprecht v. Comm., TCM 2022-91.

Amended returns did not avoid penalties. The Court of Appeals for the DC Circuit affirmed the Tax Court’s decision, holding that: (1) the John Doe summons was legally issued for legitimate purposes, (2) the summons related to the tax benefit the Lamprechts claimed by underreporting income on their original returns, and (3) therefore, the Lamprechts’ amended returns did not qualify as “qualified amended returns” that would protect them from penalties.

The court upheld the IRS’s assessment of penalties against the Lamprechts for substantial understatement of income tax.

Also see.

US v. Richard Rund (US District Court for the Eastern District of Virginia, No. 1:23-CV-00549 (Aug. 6, 2024)),where $2.9M willful penalty was upheld for failing to report foreign bank accounts in Hong Kong and Switzerland for several years, despite being aware of his obligations. Willfulness was demonstrated by his prior compliance in filing FBARs in earlier years and his participation in the offshore voluntary disclosure programs.