United States Tax Court

United States Tax Court

T.C. Memo. 2022-91

JOHANNES LAMPRECHT AND LINDA LAMPRECHT,

Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 14410-15.

Filed August 31, 2022.

—————

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),

Served 08/31/22

2

[*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.

—————

Lloyd De Vos, for petitioners.

Lindsey D. Stellwagen, for respondent.

MEMORANDUM OPINION

GUSTAFSON, Judge: This case is before the Court pursuant to

section 6213(a) 1 for redetermination of accuracy-related penalties under

1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code (“the Code”, Title 26 of the United States Code) as in effect at the relevant times;

references to regulations are to Title 26 of the Code of Federal Regulations (“Treas.

Reg.”) as in effect at the relevant times; and references to Rules are to the Tax Court

Rules of Practice and Procedure. Some dollar amounts are rounded. Citation in this

opinion to a “Doc.” refers to a document so numbered in the Tax Court docket record of

this case, and a pinpoint citation therein refers to the pagination as generated in the

portable document format (“PDF”) file.

3

[*3] section 6662(a) that the Internal Revenue Service (“IRS”)

determined against petitioners, Johannes and Linda Lamprecht, for the

tax years 2006 and 2007. Pursuant to section 6212(a), the IRS mailed a

statutory notice of deficiency (“NOD”) to the Lamprechts on January 9,

2015, determining accuracy-related penalties under section 6662(a) of

$124,294 for 2006 and $376,449 for 2007. The NOD determined these

penalties on the basis of substantial understatements of income tax

under section 6662(b)(2) and (d). 2 Both parties have moved for summary

judgment under Rule 121, and the issues for decision are whether a

genuine dispute of material fact exists with respect to: (1) whether the

Lamprechts are liable for the accuracy-related penalties imposed by

section 6662 for the 2006 and 2007 years, and, if so, (2) whether

assessment of those penalties is barred by the statute of limitations

under the provisions of section 6501. We hold that the Lamprechts are

liable for the section 6662 accuracy-related penalties for 2006 and 2007

as determined by the Commissioner, and that assessment of the

penalties is not barred by the statute of limitations. For the reasons

stated below, we will grant the Commissioner’s motion, deny petitioners’

motion, and enter judgment for the Commissioner as a matter of law.

Background

The following facts are derived from the pleadings and the parties’

respective motions, memorandums, and accompanying declarations

(including the exhibits attached thereto). Unless noted otherwise, these

facts are not in dispute.

The Lamprechts’ business activities

The Lamprechts are, and have always been, citizens of

Switzerland. In 2006 and 2007, they held visas entitling them to lawful

permanent residence in the United States (i.e., “green cards”). The

Lamprechts maintained residences in Tiburon, California, and

St. Moritz, Switzerland, and periodically rented their St. Moritz

residence to third parties.

Mr. Lamprecht worked in the United States as an investment

consultant for Trais Fluors Investment Services, Inc. (“Trais Fluors”), a

2 The NOD also determined, as an alternative basis for the penalties,

negligence under section 6662(c), but we will grant the Commissioner’s motion and

sustain the penalties without reaching the issue of negligence. In his answer the

Commissioner also asserted fraud penalties under section 6663, but he later conceded

them.

4

[*4] California corporation for which he was both an officer and the sole

shareholder. Mr. Lamprecht received a salary from Trais Fluors, as well

as interest, dividends, and capital gains from his personal investment

activities.

Mr. Lamprecht and UBS

In the years at issue, Mr. Lamprecht also received commissions

from the Swiss bank UBS AG (“UBS”) for referrals of business to it. The

commissions were deposited into one of Mr. Lamprecht’s UBS accounts.

(As we set out below, the Lamprechts did not report these commissions

on their original 2006 and 2007 Forms 1040, “U.S. Individual Income

Tax Return”, but did report them on their Forms 1040–X, “Amended

U.S. Individual Income Tax Return”.) 3

Mr. Lamprecht is an owner of Paro, Inc. (“Paro”), 4 an entity

incorporated under the laws of the British Virgin Islands. In the years

at issue, Paro maintained a UBS bank account, of which Mr. Lamprecht

was a beneficial owner.

Departure from the United States

Mr. Lamprecht departed the United States on December 9, 2009,

and submitted U.S. Citizenship and Immigration Service Form I–407,

“Abandonment of Lawful Permanent Resident Status”, to the American

Embassy in Bern, Switzerland, on December 21, 2009. Mr. Lamprecht

also filed Form 8854, “Expatriation Information Statement”, with the

IRS in December 2010. Mrs. Lamprecht departed the United States on

October 17, 2010, and surrendered her green card to the U.S. authorities

in Switzerland on November 30, 2010.

In opposition to the Commissioner’s motion for summary judgment, the

Lamprechts submitted, as Exhibit 15, a declaration by Mr. Lamprecht that stated: “the

amounts that I reported on Schedule C[, “Profit or Loss From Business”,] of my

amended 2006 and 2007 tax returns . . . are commissions that I was paid by UBS A. G.

(‘UBS’) for placing business with them. The amounts all appear on the UBS

statements that . . . appear on Exhibit 13”. That “Exhibit 13” appears in our record as

Doc. 127.

3

4 The parties disagree on the percentage of Mr. Lamprecht’s ownership of Paro.

The Lamprechts contend they own 100% of Paro as community property under the

laws of the State of California. We need not resolve this dispute.

5

[*5] The Lamprechts’ original 2006 and 2007 federal income tax returns

The Lamprechts engaged a return preparer to prepare their

original federal income tax returns for the 2006 and 2007 years, and

they filed those returns early. The 2006 return is treated as having been

filed on the due date in April 2007, and the 2007 return is treated as

having been filed on the due date in April 2008. See § 6501(b)(1).

Their original 2006 return reported income totaling $1,073,761,

and their original 2007 return reported income totaling $1,705,314. (As

they now admit, and as we show below, that reporting was short by

about $1 million for 2006 and about $5 million for 2007.) The original

returns did not report income from commissions Mr. Lamprecht received

from UBS (and that were deposited into his UBS accounts) or from

foreign-source interest, dividends, and capital gains. 5 On Schedule A,

“Itemized Deductions”, to each return, they claimed itemized

deductions.

On their original 2006 return on Schedule B, “Interest and

Ordinary Dividends”, Part III, “Foreign Accounts and Trusts”, the

Lamprechts completed line 7a (“At any time during 2006, did you have

an interest in or a signature or other authority over a financial account

in a foreign country, such as a bank account, securities account, or other

financial account?”) by putting an X in the “No” column. They left blank

line 7b (“If ‘Yes,’ enter the name of the foreign country”). They did the

same on their original 2007 return.

The 2008 John Doe summons proceeding

The Department of Justice (“DOJ”) filed an “Ex Parte Petition for

Leave to Serve John Doe Summons” 6 in the U.S. District Court for the

Southern District of Florida, styled as “In the Matter of the Tax

Liabilities of: John Does”, No. 08-21864 (June 30, 2008). The petition

The Lamprechts do not attribute these omissions to their paid return

preparer, nor do they otherwise assert “reasonable cause” for their errors under

section 6664(c). Mr. Lamprecht informed the IRS during examination that the reason

for his non-reporting was that he “thought that ‘everything Swiss was not taxable in

the U.S.’” However, because we need not reach in this opinion the issues of negligence

or fraud, we need not determine his subjective reasons for the errors.

5

6 A “John Doe summons” is a third-party summons that “does not identify the

person with respect to whose liability the summons is issued.” § 7609(f).

6

[*6] requested authorization to serve a John Doe summons on UBS

seeking information regarding the following class of persons:

United States taxpayers, who at any time during the years

ended December 31, 2002 through December 31, 2007, had

signature or other authority . . . with respect to any

financial accounts maintained at, monitored by, or

managed through any office in Switzerland of UBS AG or

its subsidiaries or affiliates and for whom UBS AG or its

subsidiaries or affiliates (1) did not have in its possessions

Forms W–9 executed by such United States taxpayers, and

(2) had not filed timely and accurate Forms 1099 naming

such United States taxpayers and reporting to United

States taxing authorities all reportable payments made to

such United States taxpayers.

Finding that the UBS John Doe summons met the requirements of

section 7609(f), the district court authorized its service upon UBS by

order dated July 1, 2008. UBS did not participate in this ex parte

proceeding (nor did the Swiss government).

Service of the summons on UBS

The IRS served the John Doe summons on UBS on July 21, 2008,

requesting records regarding: (1) the identities of U.S. taxpayers in the

specified class; (2) foreign entities established or operated on behalf of

each U.S. taxpayer in the class; (3) the opening of financial accounts,

monthly or other periodic statements of activities of such accounts, and

annual summaries of such accounts; and (4) referrals of each U.S.

taxpayer in the class to UBS offices in Switzerland. The summons

required appearance before the IRS in Miami, Florida, on August 8,

2008, for testimony and production of the requested records.

The 2009 summons enforcement proceeding

On February 19, 2009, 7 DOJ filed a petition in District Court for

the Southern District of Florida to enforce the UBS John Doe summons,

In this same general period, the IRS announced the Offshore Voluntary

Disclosure Program (“2009 OVDP”). See Statement, IRS Newsroom, “Statement from

IRS Commissioner Doug Shulman on Offshore Income” (Mar. 26, 2009),

https://www.irs.gov/newsroom/statement-from-irs-commissioner-doug-shulman-onoffshore-income. Through the 2009 OVDP, taxpayers with previously unreported

7

7

[*7] styled as United States v. UBS AG, No. 09-20423. The government

of Switzerland joined in the enforcement suit as amicus curiae. The

enforcement suit was ultimately resolved through two related out-ofcourt agreements, both executed August 19, 2009:

The first agreement, known as the “U.S.-Switzerland

Agreement”, 8 established an agreed mechanism for exchanging

information that would “achieve the U.S. tax compliance goals of the

UBS [John Doe] Summons while also respecting Swiss sovereignty.”

Under the U.S.-Switzerland Agreement, the IRS would deliver “a

request for administrative assistance pursuant to Article 26 of the 1996

Convention Between the United States of America and the Swiss

Confederation for the Avoidance of Double Taxation with Respect to

Taxes on Income” 9 to the Swiss Federal Tax Administration (“SFTA”)

seeking information regarding accounts of U.S. taxpayers maintained at

UBS in Switzerland.

The second agreement, known as the “U.S.-UBS Agreement”, was

the settlement agreement between the United States, the IRS, and UBS,

by which the parties agreed to three terms pertinent to this opinion:

First, as to the information sought by the summons, they agreed that

UBS would produce the documents requested in the UBS John Doe

summons to the SFTA on a rolling basis pursuant to an agreed-upon

schedule and that UBS’s compliance would be monitored by the Swiss

Federal Office of Justice and the Swiss Financial Market Supervisory

Authority.

offshore income could avoid potential criminal prosecution if they notified the IRS and

met other conditions. Taxpayers who did not participate in the 2009 OVDP would be

subject to the full extent of civil and criminal liability and all available penalties for

each year. The extended deadline for taxpayers to participate in the 2009 OVDP was

October 15, 2009. See IRS News Release IR-2009-84 (Sept. 21, 2009). The Lamprechts

did not participate in the 2009 OVDP, and they have asserted in this case that the

reason for their non-participation was that they were unable to obtain necessary

documents from UBS, a contention that the Commissioner argued they are barred from

making. The parties did not address the 2009 OVDP in their briefing of the crossmotions for summary judgment, so we do not address it further here.

8 The U.S.-Switzerland Agreement does not appear in our record, but it is

described in the second agreement discussed here—the U.S.-UBS agreement.

9 See generally Convention for the Avoidance of Double Taxation with Respect

to Taxes on Income, Switz.–U.S., Oct. 2, 1996, T.I.A.S. No. 97-1219.

8

[*8] Second, as to the summons enforcement case, the parties agreed

to its dismissal and expressed their understanding about the effect of

that dismissal. They agreed as follows:

Immediately upon the execution of this Settlement

Agreement, and in no event more than 5 business days

after its execution, UBS and the United States will file a

Stipulation of Dismissal, pursuant to Fed. R. Civ.

P. 41(a)(l)(A)(ii), with the United States District Court for

the Southern District of Florida. . . . The Parties

understand that the dismissal of the Action pursuant to

this paragraph 1 shall, in and of itself, have no effect on the

UBS Summons or its enforceability.

Third, as to the UBS John Doe summons itself, the parties agreed

that the IRS would “withdraw with prejudice” the UBS John Doe

summons after receiving information concerning bank accounts from

UBS pursuant to the treaty request for administrative assistance.

However, the parties agreed that “if UBS fails to comply in any material

respect with any of its obligations” to produce information, then “the IRS

is not obligated to withdraw the UBS Summons”. That is, under this

agreement, although the summons enforcement suit would be promptly

dismissed, the summons itself would remain pending and potentially

enforceable until it was “withdrawn with prejudice” after UBS provided

the information.

The IRS formally withdrew the UBS John Doe Summons, “with

prejudice”, on November 15, 2010. Information produced by UBS in

response to the John Doe summons included the Lamprechts’ account

information.

The Lamprechts’ amended 2006 and 2007 federal income tax returns

In December 2010—after UBS had given its information to the

IRS and the John Doe summons had been withdrawn—the Lamprechts

filed amended federal income tax returns for the 2006 and 2007 years,

which were prepared by a paid preparer. On the amended returns, the

Lamprechts reported their previously unreported income. Certain

amounts they reported on their original and amended returns for 2006

and 2007 compare as follows:

9

[*9] Item

Adjusted

gross income

Itemized

deductions

Total tax

2006 original

2006 amended

2007 original

2007 amended

$1,073,652

$2,816,833

$1,705,172

$6,930,169

187,338

152,481

202,497

128,460

240,393

861,864

461,798

2,344,041

Thus, the amended returns showed increases in tax liability of

$621,471 for 2006 and $1,882,243 for 2007. On lines 7a and 7b of

Schedule B to their amended returns, the Lamprechts answered “Yes”

to the question whether they had an interest in “a financial account in

a foreign country” and entered “Switzerland” as the name of the foreign

country. The Lamprechts concurrently filed Forms TD F 90-22.1,

“Report of Foreign Bank and Financial Accounts” (“FBAR”), 10 for 2006

and 2007 to report previously undisclosed foreign bank accounts.

When they filed their amended returns in December 2010, the

Lamprechts paid the increased tax liabilities for 2006 and 2007 that

they reported. (They did not report a liability for penalties nor pay

them.)

IRS examination

The Lamprechts’ 2010 federal income tax return, filed in or before

April 2011, was selected for examination and was assigned to Revenue

Agents (“RA”) Norbert Nyereyemhuka and Sandra Lyons.

The

Lamprechts did not participate in the examination of their federal

income tax return by phone conference—only through their attorney,

Mr. De Vos, who traveled to Dallas, Texas, in September 2014, for a

meeting with the examiners.

In a Form 4564, “Information Document Request”, dated

December 12, 2013, RA Nyereyemhuka requested that the Lamprechts

provide copies of their original and amended tax returns for the 2003,

2004, 2005, 2006, 2007, and 2008 years. On February 12, 2014,

RA Nyereyemhuka submitted to his immediate supervisor, Robert

Davis, a Form 5345–D, “Examination Request-ERCS (Examination

Returns Control System) Users”, requesting that the Lamprechts’

return for the 2007 year be opened for examination for the purpose of

assessing the section 6662 accuracy-related penalty. The form states,

10 Form TD F 90-22.1 was the appropriate FBAR form for 2006 and 2007, but

it was replaced by FinCEN Form 114 starting in January 2014.

10

[*10] as the “Reason for Request: To open up 2007 tax year to assess

penalties on amended return that does not meet the qualified amended

return criteria.” (Emphasis added.) The form then states: “Follow-Up

Actions: Open up tax year / Assess accuracy penalty.” (Emphasis added.)

Mr. Davis approved RA Nyereyemhuka’s request by signing the form.

RA Nyereyemhuka made an identical request to open the Lamprechts’

return for the 2006 year for examination to assess the section 6662

accuracy-related penalty via a Form 5345–D dated April 10, 2014, which

Acting Supervisory Revenue Agent Michael Anderson approved that

same day by signing the form.

The IRS first communicated to the Lamprechts its determination

that they were liable for the section 6662 accuracy-related penalties for

the years 2006 and 2007 in a Letter 950 dated July 18, 2014, which

included copies of Form 4549, “Income Tax Examination Changes”, and

Form 886–A, “Explanation of Items”, detailing the facts and law

supporting its determination.

RA Nyereyemhuka’s group manager later signed a “Civil Penalty

Approval Form” dated November 4, 2014, again approving assessment

of the section 6662 accuracy-related penalties against the Lamprechts

for the 2006 and 2007 years.

The Statutory Notice of Deficiency for 2006 and 2007

On January 9, 2015, the IRS mailed to the Lamprechts an NOD

determining the section 6662 accuracy-related penalties for 2006 and

2007. Attached to the NOD were Forms 4549–A, “Income Tax

Examination Changes”, determining section 6662 accuracy-related

penalties for 2006 and 2007, and Form 886–A providing

RA Nyereyemhuka’s analysis of the facts and law supporting his

decision to assert section 6662 accuracy-related penalties for 2006 and

2007.

The Lamprechts’ petition

The Lamprechts challenged the IRS’s determination by timely

filing a petition with the Tax Court. When they filed their petition, the

Lamprechts resided in Switzerland. 11 The Lamprechts do not dispute

the arithmetic of the IRS’s calculations of the accuracy-related penalties

11 Absent stipulation pursuant to section 7482(b)(2), venue for an appeal in this

case would be the U.S. Court of Appeals for the District of Columbia. See § 7482(b)(1).

11

[*11] for 2006 and 2007 as shown on the NOD, but they dispute the

applicability of those penalties. The petition makes two primary

contentions challenging the accuracy-related penalties. First, the

petition claims that the Lamprechts fixed their own errors and should

not be penalized. It contends that their amended returns for 2006 and

2007 are “qualified amended returns” within the meaning of Treasury

Regulation section 1.6664-2(c)(3), and that therefore there is no

underpayment to which the accuracy-related penalties may apply.

Second, the petition claims that assessment of the accuracy-related

penalties for 2006 and 2007 is barred by the statute of limitations under

section 6501.

The parties’ cross-motions for summary judgment

Following a lengthy series of discovery disputes, 12 the

Commissioner filed his motion for summary judgment, and the

Lamprechts cross-moved. Stated simply, the issue for decision is

whether the Lamprechts are liable for 20% accuracy-related penalties

(under section 6662(a)) for “substantial understatements” of tax (under

section 6662(b)(2)) on their original returns for 2006 and 2007. 13 The

Lamprechts do not dispute that the understatements on their original

returns were “substantial” (i.e., exceeding the greater of 10% of their tax

or $5,000, see § 6662(d)), and they do not raise a defense of “reasonable

basis” under section 6662(d)(2)(B)(ii)(II) nor “reasonable cause” under

section 6664(c). Rather, they make three other contentions, any one of

which would carry the day.

First, the Lamprechts contend that the “initial determination” of

the penalties was not given written supervisory approval as required by

section 6751(b)(1) (an issue not raised in the petition, but on which the

Commissioner bears the burden of production). Second, the Lamprechts

contend (as in their petition) that their amended returns were “qualified

amended returns” that cured their errors and preclude penalty liability.

And third, they continue to contend that the statute of limitations bars

the assessment of the determined penalties. These are the issues that

we address in this opinion.

12 See our orders appearing in the docket record as Docs. 61, 90, 108, 131, 150,

and 155.

13 The Commissioner also maintains his alternative position that the penalties

are warranted by “negligence” under section 6662(b)(1), but he does not assert that

more fact-intensive contention in his motion for summary judgment.

12

[*12]

I.

Discussion

General principles of law

A.

Jurisdiction

The Lamprechts’ petition was filed pursuant to section 6213(a),

which grants the Court jurisdiction to redetermine a deficiency in

federal income tax as determined in an NOD. However, the Lamprechts

paid their increased federal income tax liabilities for 2006 and 2007

when filing their amended returns, and the only liabilities at issue are

the section 6662 accuracy-related penalties. Section 6665(a) provides

that “the . . . penalties provided by this chapter [68, titled “Additions to

Tax, Additional Amounts, and Assessable Penalties”] shall . . . be

assessed, collected, and paid in the same manner as taxes”, and further

that “any reference in this title [26 U.S.C.] to ‘tax’ imposed by this title

shall be deemed also to refer to the additions to the tax, additional

amounts, and penalties provided by this chapter.” Under these

provisions the Commissioner’s determination that the Lamprechts are

liable for the section 6662 accuracy-related penalties for 2006 and 2007

is equivalent to his determining a deficiency in federal income tax for

those years; and upon the timely filing of their petition, we have

jurisdiction to redetermine that deficiency. See §§ 6213(a), 6665(a).

B.

Summary judgment

The purpose of summary judgment is to expedite litigation and

avoid unnecessary trials. Fla. Peach Corp. v. Commissioner, 90 T.C.

678, 681 (1988). The Court may grant summary judgment when there

is no genuine dispute as to any material fact and a decision may be

rendered as a matter of law. Rule 121(b); Sundstrand Corp. v.

Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994).

The moving party bears the burden of showing that no genuine

issue of material fact exists, and the Court will view any factual material

and inferences in the light most favorable to the nonmoving party.

Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985). Since we will grant

the Commissioner’s motion for summary judgment, we will draw

inferences in favor of the Lamprechts.

C.

Accuracy-related penalty

Section 6662(a) imposes an “accuracy-related penalty” equal to

20% of the portion of the underpayment that is attributable to various

13

[*13] factors, including a “substantial understatement of income tax”.

§ 6662(b)(2). For the purposes of section 6662(b)(2) and (d)(1)(A), an

understatement 14 of income tax is “substantial” if it exceeds the greater

of “10 percent of the tax required to be shown on the return” or $5,000.

§ 6662(d)(1)(A). There is no dispute that the understatements on the

Lamprechts’ original returns for 2006 and 2007 were substantial, by

comparison to the corrected amounts that the Lamprechts themselves

reported on their amended returns.

The Commissioner bears the burden of production with respect to

the liability of an individual for any penalty. § 7491(c). To satisfy his

burden, the Commissioner must present sufficient evidence to show that

it is appropriate to impose the penalty in the absence of available

defenses. See Higbee v. Commissioner, 116 T.C. 438, 446 (2001). Once

the Commissioner meets his burden of production on penalties, the

taxpayer must come forward with persuasive evidence that the

Commissioner’s showing is incorrect. Rule 142(a); Higbee, 116 T.C.

at 447.

Compliance with the written supervisory approval requirement

of section 6751(b)(1) is an element of the Commissioner’s burden of

production on penalties. Graev v. Commissioner, 149 T.C. 485, 493

(2017), supplementing and overruling in part 147 T.C. 460 (2016).

Section 6751(b)(1) provides:

No penalty under this title [26 U.S.C.] shall be assessed

unless the initial determination of such assessment is

personally approved (in writing) by the immediate

supervisor of the individual making such determination or

such higher level official as the Secretary may designate.

As the Tax Court has construed section 6751(b)(1), it requires written

supervisory approval to be obtained before the IRS formally

communicates to the taxpayer its determination that the taxpayer is

liable for the penalty. Clay v. Commissioner, 152 T.C. 223, 249 (2019),

aff’d, 990 F.3d 1296 (11th Cir. 2021). 15 The IRS’s compliance with

14 An “understatement” is defined as the excess of the amount of tax required

to be shown on the return over the amount of tax which is shown on the return.

§ 6662(d)(2)(A).

Formal communication of an IRS penalty determination implicating

section 6751(b)(1) may come in any one of multiple forms. In Clay, 152 T.C. at 249, we

15

14

[*14] section 6751(b)(1) is appropriately considered in a deficiency case.

See Graev, 149 T.C. at 493. And if, in so considering, we conclude that

the IRS failed to secure written supervisory approval for a penalty

subject to section 6751(b)(1), then we cannot sustain the penalty. See

id.

D.

Summons enforcement

“For the purpose of ascertaining the correctness of any return . . .

[or] determining the liability of any person for any internal revenue tax,”

section 7602(a)(2) authorizes the Secretary of the Treasury (“the

Secretary”), acting through the IRS, to summon

any person having possession, custody, or care of books of

account containing entries relating to the business of the

person liable for tax . . . to appear before the Secretary at

a time and place named in the summons and to produce

such books, papers, records, or other data, and to give such

testimony, under oath, as may be relevant or material to

such inquiry.

Where the summons identifies the person as to whose tax liability the

information is sought, the IRS issues the summons without any court

involvement. However, where the IRS needs information from a third

party about the tax liability of a person whose identity it does not yet

know, it may attempt to obtain that information from the third party by

means of a “John Doe summons”, i.e., a summons “which does not

held “that the initial determination for purposes of section 6751(b) was . . . when

respondent issued the RAR [revenue agent’s report] to petitioners proposing

adjustments including penalties and gave them the right to protest those proposed

adjustments.” Written supervisory approval must precede the IRS’s initial formal

communication of a penalty determination to an individual taxpayer, regardless of the

means of communication. In considering supervisory approval of an assessable penalty

under section 6707A, the Court of Appeals for the Ninth Circuit construed

section 6751(b)(1) differently from the Tax Court, so that the burden on the IRS was

less demanding. See Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner, 29 F.4th

1066, 1070–1071, 1071 nn.4 & 5 (9th Cir. 2022) (rejecting this Court’s formal

communication standard for the section 6707A penalty for failure to report

participation in a listed transaction, and indicating that the initial determination in a

deficiency case is likely embodied in the NOD), rev’g 154 T.C. 68 (2020). Although this

case is not appealable to the Ninth Circuit, see § 7482(b)(1), even if we applied the

Ninth Circuit’s reasoning in Laidlaw’s the Commissioner would still meet his burden

of production to show compliance with the supervisory approval requirement of

section 6751(b)(1). We therefore have no occasion here to reconsider our opinions in

Laidlaw’s or Clay.

15

[*15] identify the person with respect to whose liability the summons is

issued.” § 7609(f). Before the Secretary can serve a John Doe summons,

section 7609(f) requires him to establish the following in a court

proceeding: 16

(1) the summons relates to the investigation of a

particular person or ascertainable group or class of

persons,

(2) there is a reasonable basis for believing that such

person or group or class of persons may fail or may have

failed to comply with any provision of any internal revenue

law, and

(3) the information sought to be obtained from the

examination of the records or testimony (and the identity

of the person or persons with respect to whose liability the

summons is issued) is not readily available from other

sources.

Pursuant to section 7609(h)(1), “the United States district court for the

district within which the person to be summoned resides or is found

shall have jurisdiction to hear and determine any proceeding brought

under subsection . . . (f) [regarding issuance of a John Doe summons].”

That proceeding for approval of a John Doe summons is “ex parte”, and

the court’s determinations are “made solely on the petition and

supporting affidavits.” § 7609(h)(2).

When a summons is served, the receiving party may sometimes

voluntarily provide the requested information, and in that circumstance

the summons will never be judicially enforced. But if the recipient does

not produce the requested information, then section 7402(b) authorizes

the United States to bring suit in the appropriate district court to

enforce the summons, if necessary.

E.

Statute of limitations for assessment of tax

Section 6501(a) provides the general rule that “the amount of any

tax imposed by this title [26 U.S.C.] shall be assessed within 3 years

after the return was filed.” There is, however, an exception to this

general 3-year rule in the case of substantial omissions from gross

16 In such a proceeding, the Secretary is represented by the DOJ, pursuant to

28 U.S.C. § 516.

16

[*16] income under section 6501(e)(1)(A).

For the purposes of

section 6501(e)(1)(A), an omission from gross income is “substantial” if

it is “in excess of 25% of the amount of gross income stated in the

return”—the circumstance that the Lamprechts acknowledge exists

here. Where there is a substantial omission from gross income,

section 6501(e)(1)(A) provides that “the tax may be assessed . . . at any

time within 6 years after the return was filed.” The parties agree that

this 6-year period of limitation applies in this case.

Additionally, section 7609(e) suspends the period of limitations

for assessment of tax if a summons was issued but remains unresolved.

Section 7609(e)(2) reads:

(2) Suspension After 6 Months of Service of

Summons.—In the absence of the resolution of the

summoned party’s response to the summons, the running

of any period of limitations under section 6501 . . . with

respect to any person with respect to whose liability the

summons is issued . . . shall be suspended for the period—

(A) beginning on the date which is 6 months

after the service of such summons, and

(B) ending with the final resolution of such

response.

Accordingly, if the IRS serves a summons, and that summons is not

resolved within six months of service, then the period of limitations for

assessment under section 6501 is suspended from the six-month

anniversary of service of the summons until its final resolution. (The

parties disagree about whether such a suspension occurred in this case.)

II.

Analysis

The Lamprechts’ amended returns reported tax liabilities of

$665,400 for 2006 and $2,031,194 for 2007, whereas their original

returns reported tax liabilities of $43,929 for 2006 (understating the tax

by $621,471) and $148,951 for 2007 (understating the tax by

$1,882,243). Because the Lamprechts’ understatements of income tax

on their original returns greatly exceed 10% of the tax required to be

shown (i.e., the tax eventually reported on their amended returns), those

understatements are “substantial” and are therefore subject to the

accuracy-related penalty of section 6662(a) and (b)(2). See § 6662(d).

Arithmetically speaking, the parties agree on the amounts of the

17

[*17] accuracy-related penalties for the 2006 and 2007 years as

calculated by reference to the tax on the original returns. However, the

Lamprechts dispute their liability on the grounds that we now discuss.

A.

Written supervisory approval under section 6751(b)(1)

Because the only liabilities at issue in this case are penalties, the

Commissioner bears the burden of production. See § 7491(c). As we

have noted, the Commissioner’s burden of production also includes the

burden to show compliance with the requirement of section 6751(b)(1)

that the “initial determination” of the penalty be approved in writing by

the “immediate supervisor”.

1.

The Commissioner’s showing

The IRS first formally communicated its determinations of

section 6662 accuracy-related penalties to the Lamprechts in the

Letter 950, dated July 18, 2014, which included an examination report

showing proposed changes to the Lamprechts’ 2006 and 2007 tax

returns. (The Lamprechts do not point to any previous communication

that

could

have

embodied

the

“initial

determination”.)

Section 6751(b)(1) is satisfied where written supervisory approval of the

“initial determination” of the penalty is obtained before the first formal

communication of the penalty determination to the taxpayer. Clay,

152 T.C. at 249. To show that such approval was obtained here, the

Commissioner proffers Forms 5345–D, which state that the “Reason” for

opening the Lamprechts’ 2006 and 2007 returns for examination was “to

assess penalties on amended return that does not meet the qualified

amended return criteria”, and that the “Follow-up Actions” would be to

“Open up tax year” and “Assess accuracy penalty”—i.e., the section 6662

accuracy-related penalty. (Emphasis added.) This form sufficiently

identifies the penalty being determined, the reasoning for doing so, and

the proposal that it is to be “assess[ed]”, thereby demonstrating an

initial determination that the Lamprechts were liable for section 6662

accuracy-related penalties for 2006 and 2007. The Forms 5345–D bear

the immediate supervisors’ signatures, and they are dated February 12,

2014 (for the 2007 approval), and April 10, 2014 (for the 2006 approval),

which both predate the Letter 950 issued in July 2014. Because the

Forms 5345–D reflect initial determinations of the Lamprechts’ liability

for the section 6662 accuracy-related penalties for 2006 and 2007 and

predate the first formal communication of the penalties to the

Lamprechts, the Commissioner has met his burden of production to

show compliance with section 6751(b)(1).

18

[*18]

2.

The Lamprechts’ criticisms

The Lamprechts resist this conclusion with three criticisms that

are not well grounded:

a.

The nature of Form 5345–D

First, the Lamprechts complain that Form 5345–D, which is used

to open an examination, is not properly used for supervisory approval of

a penalty. It is true that Internal Revenue Manual (“IRM”) 20.1.5.1.6(4)

(Jan. 24, 2012) suggests that “written managerial approval . . . should

be documented on the Civil Penalty Approval, leadsheet”; but three

considerations must be kept in view: First, it is also true that in certain

circumstances the IRM expressly stated that Form 5345–D is used to

secure supervisory approval of certain penalties. 17 Second, “[i]t is a wellsettled principle that the Internal Revenue Manual does not have the

force of law, is not binding on the IRS, and confers no rights on

taxpayers.” See, e.g., McGaughy v. Commissioner, T.C. Memo. 2010-183,

100 T.C.M. (CCH) 144, 148. Third, we have held that no particular form

is required for written supervisory approval under section 6751(b)(1).

See, e.g., Palmolive Bldg. Invs., LLC v. Commissioner, 152 T.C. 75, 86

(2019). The Commissioner made a showing that, for each year at issue,

the form twice expressly requested approval to open an examination “to

assess penalties on amended return” and to “[a]ssess accuracy penalty”.

(Emphasis added.) The forms that the examining agent produced thus

reflected not just a request to start an examination but rather his initial

determinations to assess penalties, and those initial determinations

were approved by the signatures of his supervisors before formal

communication of those determinations to the Lamprechts. The

Lamprechts raise no “genuine dispute” as to these facts.

17 See, e.g., IRM 20.1.12.6(1) (Aug. 27, 2010) (“If the examiner determines a

penalty [applicable to incorrect appraisals] is warranted, the examiner will prepare

Form 5345–D . . . and secure the group manager’s approval”); IRM 4.32.2-12 (June 8,

2012) (“Use Form 5345–D . . . to establish each tax year there will be a penalty

assessed”); IRM 4.24.16.1.11 (Sept. 12, 2013) (establishing that supervisory approval

of proposed penalties in excise tax examinations is given using Form 5345–D). The

IRM is a sprawling instruction manual, the various parts of which are amended at

different times, and its penalty-related provisions are scattered throughout. The

year after these Forms 5345–D were signed, the IRM included an express provision

that examiners “gain their manager’s approval to open a penalty case” (the action

taken by Form 5345–D) “[a]fter [the] examiners determine that a penalty is

warranted.” IRM 20.1.9.2.1(1) (July 8, 2015) (emphasis added).

19

[*19]

b.

The IRS’s handling of Form 5345–D

Second, the Lamprechts question the sequence of events. They

point out that electronic time-stamps of the digital signatures on the

Forms 5345–D show that the supervisors signed the forms before the

agent who made the initial determination of the penalty, and they

contend that a “manager cannot approve an action which has not yet

taken place.”

This scrutiny of the process is misdirected.

Section 6751(b)(1) requires a signature from the supervisor approving

the penalty, not from the individual making the initial determination.

See Palmolive Bldg. Invs., LLC, 152 T.C. at 86 (“The statute does not

require any particular writing by the individual making the penalty

determination, nor any signature or written name of that individual”).

If the examiner signs the form at all (as to which section 6751(b)(1) is

indifferent), it does not matter whether he does so before he submits the

document to the supervisor or afterwards when he then moves the

process along.

c.

The Commissioner’s discovery responses

Third, the Lamprechts argue that, even if these Forms 5345–D

would otherwise satisfy the Commissioner’s burden of production under

section 6751(b)(1), we should preclude the Commissioner from relying

on these documents. The Forms 5345–D were first produced to the

Lamprechts on February 12, 2021, when the Commissioner filed his

motion for summary judgment. The Lamprechts say that he failed to

produce them earlier in response to a discovery request or in response

to our order ruling on their motion to compel production of documents,

and they ask us therefore to preclude the Commissioner from relying on

them now. This argument ostensibly implicates the important subjects

of a litigant’s duty to respond conscientiously and honestly to his

opponent’s discovery requests and the necessity of the Court’s enforcing

its discovery rules and orders—with preclusive sanctions, where

appropriate. However, the Lamprechts’ contentions do not fairly

present the document request or our order on the motion to compel.

i.

Document Request No. 7

The document request that the Lamprechts rely on did not

expressly request Forms 5345–D, nor did it more generally request

documents to be relied on to show compliance with section 6751(b)(1) (a

subject that the Lamprechts addressed in a roughly contemporaneous

motion for summary judgment). Rather, Document Request No. 7

20

[*20] requested “[a]ll documents on which you intend to rely at trial.”

However, because we will grant the Commissioner’s motion for

summary judgment, there will be no trial in this case, and the set of

documents to be “rel[ied on] at trial” will be an empty set.

Moreover, Document Request No. 7 is very broad, difficult for

even a conscientious recipient to respond to comprehensively when a

case is not yet ready for trial. What a party will rely on at trial will

depend on (among other things) what the party learns or obtains before

that trial, what the parties will stipulate under Rule 91, what the partyopponent eventually disputes, and what the Court holds in pretrial

orders. In the Tax Court, the final deadline to announce the exhibits to

be offered at trial is provided in a Standing Pretrial Order (which was

issued in this case on two previous occasions when trial dates were set

but later continued) that gives a deadline for the pretrial exchange of all

documents to be used at trial. Of course, a party is entitled to obtain

documents, through discovery, ahead of that deadline; but discovery

requests should seek specific information, rather than simply

attempting to revise the Court’s schedule and move up the deadline for

the disclosure of all trial exhibits.

ii.

Motion to compel and order

The Lamprechts invoke our order with the following contention:

18.

By its order entered on September 26, 2017,

the Court ordered Respondent to produce certain classes of

documents requested by Petitioners and not previously

produced by Respondent. The Court further stated “The

Court would expect to preclude Respondent from relying at

trial upon any responsive document not produced by

October 13, 2017”. . . .

....

20.

Respondent did not produce the Forms

5345–D by October 13, 2017.

21.

Respondent did not produce the Forms

5345–D on or reasonably after February 20, 2018, the date

on which he stated that he had written managerial

approval for the substantial understatement penalty that

satisfied the requirements of Section 6751(b)(1). . . .

21

[*21]

22.

Respondent

5345–D in discovery.

never

produced

the

Forms

23.

Consistent with the Order of the Court,

Respondent should be precluded from relying upon the

Forms 5345–D to prove compliance under Section 6751(b)

because the documents were not produced by October 13,

2017 or a reasonable time thereafter.

It was not incorrect for the Lamprechts to say that we ordered

production of “certain classes of documents”—but those classes did not

include “[a]ll documents on which you intend to rely at trial” (their

Request No. 7). Rather, we ordered

that petitioners’ motion to compel production of documents

is denied, except that it is granted . . . [as to certain

documents requested in] Request No. 1 . . . . The Court

would expect to preclude respondent from relying at trial

upon any responsive document not produced by October 13,

2017.

That is, our order denied the Lamprechts’ motion to compel production

of documents as to Request No. 7 (the request with which they allege

the Commissioner failed to comply), and the preclusion (at trial) of which

we warned related to the responsive documents that we did compel.

Seeing no violation of our order, we will not preclude the Commissioner

from relying on the Forms 5345–D to show compliance with

section 6751(b)(1).

Since there is no genuine dispute, for purposes of Rule 121(b),

that the Commissioner has met his burden of production as to written

supervisory approval, we turn to the Lamprechts’ other two contentions.

B.

“Qualified amended returns”

1.

Definition and effect

A penalty-generating “substantial understatement” under

section 6662(d)(1)(A) is determined by reference to “the amount of the

tax imposed which is shown on the return”. § 6662(d)(2)(A)(ii). An

amount not “shown on the return” may yield a penalty. The Lamprechts

argue that we should look not to the amounts of tax shown (and not

shown) on their original returns but rather to the amounts of tax shown

on their amended returns for 2006 and 2007, which reported their entire

22

[*22] liabilities and reflected no understatements. The Lamprechts

contend that these are “qualified amended returns” within the meaning

of Treasury Regulation section 1.6664-2(c)(3) 18 and as such are the

proper basis for reckoning whether there was an underpayment to which

the section 6662 accuracy-related penalty may apply. Section 1.66642(c)(2) provides: “The amount shown as the tax by the taxpayer on his

return includes an amount shown as additional tax on a qualified

amended return (as defined in paragraph (c)(3) of this section)”; and if

the Lamprechts’ amended returns are “qualified amended returns” as

they contend, then they indeed made no “understatement” (under

section 6662(b)(2)) that gave rise to an “underpayment” (under section

6662(a)).

The Commissioner contends that the amended returns were not

“qualified amended returns” because they were filed after the issuance

of the UBS John Doe summons. 19 He relies for this contention on

Treasury Regulation section 1.6664-2(c)(3)(i), which defines a “qualified

amended return” thus:

A qualified amended return is an amended return . . . filed

after the due date of the return for the taxable year

(determined with regard to extensions of time to file) and

before the earliest of–

....

(D)(1) The date on which the IRS serves a

summons described in section 7609(f) [i.e., 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

18 Treasury Regulation section 1.6664-2(c) was a temporary regulation in 2006,

see Treas. Reg. § 1.6664-2T (2006), and was finalized on January 8, 2007, see T.D. 9309,

2007-1 C.B. 497. The temporary and final versions contain the same text and are

nearly identical in format. The final version is reproduced here.

19 The Lamprechts “[a]ssum[e] for purposes of this argument that the UBS

Summons was a valid and enforceable summons”, Doc. 163, para. 48; and they refer in

a footnote, id. n.2, to their “discussion of whether the UBS Summons was a valid and

enforceable summons” which is given in connection with the statute-of-limitations

issue. We follow their lead and discuss the validity of the summons in the statute-oflimitations context. But if they mean to apply the invalidity argument to this

“qualified amended return” issue also, then we reject that argument in this context for

the reasons we discuss below in part II.C in the context of the statute of limitations.

23

[*23]

claimed any tax benefit on the return directly or

indirectly.

(2) The rule in paragraph (c)(3)(i)(D)(1) of this

section applies to any return on which the taxpayer

claimed a direct or indirect tax benefit from the type

of activity that is the subject of the summons,

regardless of whether the summons seeks the

production of information for the taxable period

covered by such return . . . .

(Emphasis added.)

In this case the IRS served the UBS John Doe summons on

July 21, 2008, but the Lamprechts did not file their amended returns

until December 2010—long after service of the summons. Therefore, if

the UBS John Doe summons met the terms of subparagraph (3)(i)(D)(1),

then the Lamprechts’ amended returns fail to qualify.

2.

“[C]lass that includes the taxpayer”

That UBS John Doe summons clearly “relat[ed] to the tax liability

of a person, group, or class that includes the taxpayer”: It sought

information regarding U.S. taxpayers with signature or other authority

over accounts maintained at UBS in Switzerland for whom UBS did not

have on file a Form W–9, “Request for Taxpayer Identification Number

and Certification”, and did not issue Forms 1099 for tax years 2002

through 2007. Consequently, the Lamprechts are clearly within the

“class” of persons identified in the UBS John Doe summons because:

(1) they were U.S. taxpayers; (2) Mr. Lamprecht maintained at UBS

personal and business accounts over which he had signature authority;

(3) unreported income was deposited into those accounts; and (4) the

Lamprechts do not allege that UBS either had a Form W–9 on file for

Mr. Lamprecht or issued to him a Form 1099 reporting income he

received from UBS.

3.

“[C]laimed any tax benefit”

The Lamprechts argue, however, that they did not (in the words

of subparagraph (3)(i)(D)(2) of the regulation) “claim[] a direct or

indirect tax benefit from the type of activity that is the subject of the

[UBS John Doe] summons”. According to the Lamprechts, in order to

“claim[] a . . . tax benefit” one must make “some affirmative statement

on the tax return that the taxpayer is entitled to the tax benefit claimed

24

[*24] [or] there must be some misstatement on the return itself that

causes the understatement of tax liability.” The Lamprechts would have

us distinguish “between a person who omits items or gains from his tax

return and a person who claims a tax benefit on their tax return,” and

would have us hold that a taxpayer who omits substantial items of gross

income on his return does not thereby “claim[] a tax benefit”.

In our view this argument for a narrow construction triggered

only by an “affirmative statement” or “misstatement” is not supported

by the text of the regulation nor by the caselaw and is not actually borne

out in the facts of the Lamprechts’ returns.

a.

The text of the regulation

Treasury Regulation section 1.6664-2(c)(3)(i)(D)(1), as quoted

above, establishes that, in order to be considered a “qualified amended

return”, the amended return must be filed before “[t]he date on which

the IRS serves a [John Doe] summons . . . relating to the tax liability of

a . . . class that includes the taxpayer . . . with respect to an activity for

which the taxpayer claimed any tax benefit on the return directly or

indirectly.” Example 5 of Treasury Regulation section 1.6664-2(c)(5)

shows the application of that principle and illustrates our issue. In

Example 5, the IRS serves a section 7609(f) John Doe summons on a

credit card company requesting the identities of, and information

concerning, U.S. taxpayers who had signature authority over credit

cards issued by, through, or on behalf of certain offshore financial

institutions. The credit card company provides information about the

taxpayer in response to the John Doe summons. The taxpayer files an

amended return showing increased tax liability before the IRS contacts

him concerning an examination of his income tax return, but after the

John Doe summons had been served on the credit card company.

Example 5 concludes that, “[u]nder paragraph (c)(3)(i)(D) of this section,

the amended return is not a qualified amended return because it was

not filed before the John Doe summons was served on [the credit card

company].” In Example 5 the only difference described as having been

reported on the amended return is “an increase in . . . Federal income

tax liability”, so that the only “tax benefit . . . claimed” on the original

return was (by implication) a lower income tax liability.

Here, the UBS John Doe summons sought information about U.S.

taxpayers who were underreporting gross income using foreign entities

and offshore UBS accounts. The Lamprechts understated their gross

income for 2006 and 2007 by omitting all foreign source income from

25

[*25] their tax returns, and accordingly they claimed a tax benefit,

either directly by maintaining implicitly that they were entitled to the

section 911 foreign earned income exclusion (discussed below), or

indirectly by understating their tax liabilities and receiving tax savings

through underpayments. Because the Lamprechts were members of the

class of persons targeted by the UBS John Doe summons, claimed a tax

benefit either directly or indirectly with respect to the activity identified

in the UBS John Doe summons, and did not file their amended returns

before the UBS John Doe summons was served, their amended returns

for 2006 and 2007 are not “qualified amended returns”; and therefore,

the reporting on those amended returns of the originally omitted income

and the resulting additional tax does not result in that additional tax

being included in the Lamprechts’ “amount shown as the tax” on their

returns, for purposes of Treasury Regulation section 1.6664-2(c)(2) and

section 6662 of the Code. Accordingly, the Lamprechts substantially

understated their income tax for 2006 and 2007 and are liable for section

6662 accuracy-related penalties. See § 6662(a), (d).

U.S. taxpayers are subject to tax on world-wide income. See Huff

v. Commissioner, 135 T.C. 222, 230 (2010) (quoting § 61) (“Gross income

for the purpose of calculating taxable income is defined as ‘all income

from whatever source derived.’”). Under section 7701(b)(1)(A)(i), a

lawful permanent resident (such as the Lamprechts were in the years

at issue) “shall be treated as a resident of the United States.” See also

Cook v. Tait, 265 U.S. 47, 56 (1924). The Lamprechts omitted all foreign

source income from their original 2006 and 2007 tax returns, thereby

substantially understating their gross income and corresponding tax

liabilities, and in doing so they received the benefit of understated tax

liabilities. Furthermore, during the examination of their 2006 and 2007

income tax returns, when the Lamprechts filed amended returns for

2006 and 2007 to report foreign income previously unreported, their

representative asserted that Mr. Lamprecht “did not report his foreign

source income and earnings on his originally filed returns because he

thought that ‘everything Swiss was not taxable in the U.S.’”

There is such a thing as an “[e]xclusion from gross income”,

provided in section 911, which excludes “foreign earned income”; but this

exclusion—this tax benefit—is available only for a “qualified

individual”, § 911(a), which is defined as someone whose tax home is in

a foreign country, see § 911(d)(1), and Mr. Lamprecht was not such an

individual in 2006 and 2007. One could say that the Lamprechts’

omission of their foreign source income was an invalid claim of the

foreign earned income exclusion under section 911—which amounts to

26

[*26] claiming a tax benefit whether affirmatively stated on the return

or not. To properly claim such an exclusion, one would have to file with

his income tax return a Form 2555, “Foreign Earned Income”, which the

Lamprechts did not file. By their reckoning, apparently the taxpayer

who erroneously excludes the earned income and files the Form 2555

thereby makes a damning “affirmative statement” that constitutes the

claiming of a benefit (so he is ineligible thereafter to fix the error on a

“qualified amended return”); but the person who likewise erroneously

excludes the earned income but obscures his omission by not reporting

it on Form 2555 is deemed eligible to fix the error on a “qualified

amended return” and thereby to avoid the penalty otherwise due on his

understatement. If this were the rule, it would create a surprising and

perverse incentive to hide one’s erroneous exclusions. We do not see that

“affirmative statement” rule in the text of the regulation, which looks

only to see whether the taxpayer “claimed any tax benefit on the

[original] return directly or indirectly”.

Treas. Reg. § 1.66642(c)(3)(i)(D)(1) (emphasis added).

b.

The caselaw

As support for their argument that omitting items from a tax

return is not the same thing as “claim[ing] any tax benefit,” the

Lamprechts cite Colony, Inc. v. Commissioner, 357 U.S. 28 (1958), and

United States v. Home Concrete & Supply, LLC, 566 U.S. 478 (2012). In

Colony the Supreme Court held that understating gross income on an

income tax return by misstating costs items or basis is not an “omi[ssion]

from gross income [of] an amount properly includible therein” for the

purposes of extending the period of limitations under section 275(c) of

the 1939 Code (later reenacted as section 6501(e)(1)(A) in the

1954 Code). Colony, Inc. v. Commissioner, 357 U.S. at 36–37. The

Supreme Court later extended the holding of Colony to

section 6501(e)(1)(A) in Home Concrete & Supply LLC, 566 U.S. at 490.

These cases both construe an “omi[ssion] from gross income” for the

purposes of extending the period of limitations under section

6501(e)(1)(A); they do not address (even tangentially) the question

whether a taxpayer’s omissions from gross income constitute the

“claim[ing of] any tax benefit on the return directly or indirectly” for the

purposes of Treasury Regulation section 1.6664-2(c)(3)(i)(D).

The

Lamprechts cite these cases for the proposition that “an omission from

gross income [is] not the same as an overstatement of basis,” and with

that we agree. Not every error in tax reporting is the same.

27

[*27] However, section 1.6664-2(c)(3)(i)(D) looks for a nonspecific “tax

benefit”.

The holdings of Colony and Home Concrete that a

misstatement of basis is not the same thing as an omission of income do

not shed any light on how we should construe “claimed any tax benefit”;

and we conclude that the broad reach obviously intended by the

regulation—i.e., “any tax benefit” and “directly or indirectly”—tends

against a narrow construction of “claimed any tax benefit”.

Furthermore, in imputing an officer’s tax fraud to a corporation, the

Court of Appeals for the Tenth Circuit in Ruidoso Racing Ass’n, Inc. v.

Commissioner, 476 F.2d 502, 506 (10th Cir. 1973), aff’g in part,

remanding in part T.C. Memo. 1971-194, explained that “[a] tax benefit

[to the corporation] could arise in two ways, understatement of income

and overstatement of business expense deductions”, in concluding that

a corporate officer’s “failure to report bar income reduced total income

and, hence, produced a tax benefit for the corporation.” Ruidoso did not

involve a “qualified amended return” analysis, but it illustrates in its

different context the potential breadth of a “tax benefit”. We are

satisfied that an understatement of income by omission claims a tax

benefit within the meaning of Treasury Regulation section 1.66642(c)(3)(i)(D).

c.

Affirmative statements on the Lamprechts’

amended returns

The Lamprechts’ position about the meaning of “claim[ing] any

tax benefit” presumes a clean distinction between a mere omission of

income and an affirmative claim of a tax benefit. The actual facts of the

Lamprechts’ returns, however, do not bear out this distinction. As is

often the case, the omission of income from the Lamprechts’ original

returns affected other reporting on the returns and resulted in their

originally claiming—affirmatively, one must say—deductions in

amounts to which they were not entitled (and which they later had to

reduce on their amended returns).

As is shown on the table supra p. 9, the Lamprechts elected under

section 63(e) to itemize deductions on their original and amended

returns for both 2006 and 2007. The amount of itemized deductions that

an individual may claim will be limited by section 68(a) if his “adjusted

gross income [“AGI”] exceeds the applicable amount”. In 2006 that

28

[*28] applicable amount was $150,500; in 2007 it was $156,400. 20

Where AGI exceeded those amounts, the greater one’s AGI, the greater

was the limitation, resulting in increasingly reduced itemized

deductions. On their original returns the Lamprechts incorrectly

reported AGI of $1,073,652 for 2006 and $1,705,172 for 2007; but on

their amended returns they correctly reported much larger AGI of

$2,816,833 for 2006 and $6,930,169 for 2007. Consequently, the

itemized deductions to which they were entitled were overstated on the

original returns for 2006 as $187,338 and for 2007 as $202,497, and they

were corrected on the amended returns to $152,481 for 2006 and

$128,460 for 2007. That is, on their original returns they claimed

excessive itemized deductions of $34,857 for 2006 and $74,037 for

2007—totaling $108,894 for the two years.

In sum, because the Lamprechts incorrectly failed to report on

their original returns for 2006 and 2007 almost $7 million of their

foreign income, those returns also claimed (one can say “affirmatively

claimed”) itemized deductions totaling over $100,000 to which the

Lamprechts were not entitled. If, as the Lamprechts argue, we must

look for “some affirmative statement on the [original] tax return that

the taxpayer is entitled to the tax benefit claimed”, we find such an

“affirmative statement” on the Schedules A to their 2006 and 2007

returns. The Lamprechts’ subsequent corrections on the amended

returns were their admission that, because of the actual magnitude of

their originally unreported income, they were not entitled to those

greater amounts of deductions affirmatively claimed on the original

returns. Therefore, even under the Lamprechts’ narrower construction

of Treasury Regulation section 1.6664-2(c)(3)(i)(D)(2), their original

returns “claimed a direct or indirect tax benefit from the type of activity

that is the subject of the [UBS John Doe] summons”. As a result, the

amended returns—not filed until after the John Doe summons—were

not “qualified amended returns”; and we therefore look not to the

amended returns but to the erroneous original returns to determine

whether there were substantial understatements of “the amount[s] of

tax imposed which [were] shown on the return[s]”. We hold that there

was.

20 See §§ 1(f)(3), 68(b)(2); IRS Pub. 501, “Exemptions, Standard Deduction, and

Filing Information” at 1 (2006) (“Some of your itemized deductions may be limited if

your adjusted gross income is more than $150,500”); IRS Pub. 501, “Exemptions,

Standard Deduction, and Filing Information” at 1 (2007) (“$156,400”).

29

[*29] C.

The period of limitations and the UBS John Doe summons

1.

The ordinary running of the six-year period of

limitations

The returns at issue here were deemed timely filed in April 2007

and April 2008, and the parties agree that the six-year limitations

period imposed by section 6501(e)(1)(A) applies. However, the NOD was

not mailed until January 2015—i.e., more than six years after the filing

of both of those returns. 21 The Lamprechts contend that assessment of

the section 6662 accuracy-related penalties against them is barred by

the statute of limitations for assessment under section 6501. The

Commissioner contends that, under section 7609(e)(2), the running of

the six-year limitations period was suspended by the service of the UBS

John Doe summons, 22 and the Lamprechts argue that it was not.

2.

The parties’ positions as to the UBS John Doe

summons under section 7609(e)

Because (as we explained above) the Lamprechts were members

of the class of taxpayers identified in the UBS John Doe summons who

participated in activities that were the subject of the summons, the

Commissioner contends that, pursuant to section 7609(e), the service of

the summons suspended the period of limitations for assessment once

the summons had remained unresolved after 6 months from service.

21 For 2006 (for which the return was deemed filed in April 2007) the six-year

period would end in April 2013, which is 21 months short of the January 2015 issuance

of the NOD. For 2007 (for which the return was deemed filed in April 2008) the sixyear period would end in April 2014, which is nine months short of the January 2015

issuance of the NOD. The Commissioner’s position requires that he show a suspension

or extension of the period of limitations of no less than 21 months.

22 The Commissioner has in fact three rejoinders to the Lamprechts’ statute-

of-limitations contention, two of which we do not address here: (1) In his motion for

summary judgment, the Commissioner asserts that the Lamprechts’ failure to file a

Form 5741, “Information Return of U.S. Persons with Respect to Certain Foreign

Corporations”, for an entity called Paro Inc. extended the period of limitations under

section 6501(c)(8). Because we hold for the Commissioner on the section 7609(e)(2)

issue, we need not reach section 6501(c)(8). (2) 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.

30

[*30] The parties agree that the 6-month anniversary of service of the

UBS John Doe summons is January 21, 2009, but they disagree as to

the date of the final resolution of the summons. The Commissioner

asserts that the UBS John Doe summons was not resolved until the IRS

formally withdrew the summons almost 22 months later on November

15, 2010. By that reckoning, 22 months is added to the limitations

period, and the NOD is rendered timely as to both 2006 and 2007.

The Lamprechts argue, first, that the UBS John Doe summons is

invalid and unenforceable because it was issued for an improper purpose

and therefore cannot operate to extend the period for assessment under

section 7609(e). The Lamprechts also argue that final resolution of the

UBS John Doe summons occurred not in November 2010 (when the IRS

withdrew it) but rather on August 19, 2009, when the district court

entered its order dismissing the summons enforcement case on the basis

of the stipulation of dismissal filed by DOJ. By that reckoning, the

service of the summons could have added only about 7 months to the

limitations period, a suspension that would not render the NOD timely

for either 2006 (which needed 21 months) or 2007 (which needed 9

months). We now consider each of the Lamprechts’ two contentions.

3.

Validity of the summons

The Lamprechts contend that the John Doe summons did not toll,

or suspend, the period of limitations because the summons lacked any

valid purpose. Relying on the declaration of the “head of legal and

international affairs of the Swiss Federal Banking Commission, a senior

position in the Swiss Federal government”, the Lamprechts assert that

“representatives of the Internal Revenue Service” stated that “the UBS

Summons would be issued to interrupt the running of the statute of

limitation” and admitted “that no enforcement activity for the UBS

Summons would take place as long as discussions were underway

between the United States and Switzerland relating to obtaining

documents from UBS.” The Lamprechts observe that the documents

that UBS did eventually produce were the result not of the summons

but of a simultaneous request by the U.S. government pursuant to

the tax treaty between the United States and Switzerland,

and not unilateral measures such as the UBS

Summons. . . . The IRS stated, however, that they would

not withdraw the UBS Summons because the withdrawal

would undo the extension of the statute of limitations that

it wanted to achieve by issuing the UBS Summons as a

31

[*31] John Doe Summons. They also wanted to use the UBS

Summons as leverage against Switzerland to ensure that

UBS met its obligations under the UBS Settlement

Agreement.

According to the Lamprechts, issuing a John Doe summons solely

to extend the period of limitations for assessment is an improper

purpose which undermines its validity and vitiates any effect it might

have had on the period of limitations. The Lamprechts cite United

States v. Powell, 379 U.S. 48, 58 (1964), for the proposition that an

improper purpose is “to harass the taxpayer or to put pressure on him

to settle a collateral dispute,[23] or for any other purpose reflecting on

the good faith of the particular investigation.”

However, the Supreme Court’s opinion in Powell addressed a

validity challenge by the summoned party in the district court summons

enforcement proceeding, not by a class member in his own later tax case.

The Lamprechts cite no authority for their doubtful propositions

(1) that, after a district court has approved the validity of a John Doe

summons for purposes of enforcement against a record-holder (here,

UBS), the validity may later be challenged by a taxpayer in the John

Doe class (here, the Lamprechts) in his own collateral proceeding, 24 nor

(2) that a consequence of a successful challenge of invalidity by a

member of the John Doe class would be that the summons would have

no effect on the period of limitations. In the instant case, both UBS and

the Swiss government were alert and well aware of the district court

suit for enforcement of the summons, and there is no reason to suppose

that they overlooked a colorable challenge to the validity of the summons

at the time and that we therefore ought to remedy their oversight by

entertaining such a challenge from a member of the John Doe class. But

if we were to entertain that challenge here, we think that the

Lamprechts have not made a showing to support the premise of their

23 Because the summons at issue was a John Doe summons, it could not have

been issued with an intention to harass in particular the Lamprechts (about whom the

IRS was apparently ignorant) or to pressure them to settle any collateral dispute.

Rather, the Lamprechts contend that the improper purpose in this instance was the

extension of the period of limitations.

24 Cf. Tiffany Fine Arts, Inc. v. United States, 469 U.S. 310, 321 (1985)

(“[Section] 7609(f) provides no opportunity for the unnamed taxpayers to assert any

‘personal defenses,’ such as attorney-client or Fifth Amendment privileges that might

be asserted under §[] 7609(a) and (b) . . . . What § 7609(f) does is to provide some

guarantee that the information that the IRS seeks through a summons is relevant to

a legitimate investigation, albeit that of an unknown taxpayer”).

32

[*32] challenge: They have not shown that the IRS’s sole purpose for

the UBS John Doe summons was extending the period of limitations for

assessment, nor that doing so was an improper purpose.

The Lamprechts’ own characterization of the IRS’s purpose was

two-fold: The IRS “wanted to achieve . . . the extension of the statute of

limitations . . . by issuing the UBS Summons as a John Doe Summons.

They [i.e., the IRS] also wanted to use the UBS Summons as leverage

against Switzerland to ensure that UBS met its obligations under the

UBS Settlement Agreement.” (Emphasis added.) The IRS had two

potential means 25 to obtain information from UBS—i.e., the John Doe

summons and the U.S.-Switzerland Agreement provisions—and it

employed both. The extension of the period of limitations was one of the

congressionally intended effects of the John Doe summons, and the IRS

employed the John Doe summons in order to take advantage of that

consequence, lest its investigation be rendered moot before it could be

completed. But the IRS also (by the Lamprechts’ account) used the

pendency of the summons as leverage to prompt Switzerland to

cooperate with the production of information under the U.S.Switzerland Agreement. The fact that the information was eventually

produced pursuant to the U.S.-Switzerland Agreement is no indication

that the John Doe summons was not helpful to that production and is

no indication that the summons was not issued in good faith.

The 2009 OVDP and the district court’s holding that the UBS

John Doe summons satisfied the requirement of section 7609(f) indicate

the good faith nature of the IRS’s investigation into U.S. taxpayers with

unreported foreign income. Furthermore, the decision of the parties to

the enforcement suit to leave the UBS John Doe summons open

indicates that suspending the statutory period for assessment was not

the sole purpose of the summons; rather, the IRS was evidently working

to obtain information (and to maintain its ability to do so). In addition,

leaving the UBS John Doe summons open was also obviously meant to

assure compliance with the request for information specified in the U.S.Switzerland Agreement, as is evidenced by the IRS’s eventual

withdrawal of the summons after the information was obtained from

25 Where the law grants two means, it is not inherently improper for a party to

employ both means. For example, a taxpayer may sometimes properly pursue

information from the IRS both through civil discovery in litigation and through a

request under “FOIA”—the Freedom of Information Act, 5 U.S.C. § 552. Under FOIA

he may avoid objections of irrelevance that might hinder discovery requests, but using

FOIA to avoid a relevance dispute is not improper.

33

[*33] UBS through the agreed channels. We see no impropriety in the

UBS John Doe summons.

We hold that the six-year statute of limitations for assessment

under section 6501(e)(1)(A) was suspended by the operation of

section 7609(e) because of the issuance of the UBS John Doe summons.

4.

Final resolution

Treasury Regulation section 301.7609-5(e)(3) 26 provides:

For purposes of section 7609(e)(2)(B), final resolution with

respect to a summoned party's response to a third-party

summons occurs when the summons or any order enforcing

any part of the summons is fully complied with and all

appeals or requests for further review are disposed of, the

period in which an appeal may be taken has expired or the

period in which a request for further review may be made

has expired.

The Lamprechts contend that final resolution of the UBS John

Doe summons occurred on August 19, 2009, when the district court

ordered dismissal of the summons enforcement suit following entry of

the stipulation of dismissal. (They suggest no alternative date.)

However, the settlement agreement between the parties to the

enforcement suit specified that dismissal of the suit would “in and of

itself, have no effect on the UBS [John Doe] Summons or its

enforceability” and contemplated compliance with the summons after

dismissal of the suit through the method agreed to in the USSwitzerland Agreement. Because the UBS John Doe summons was not

yet fully complied with at the time the enforcement suit was dismissed,

that dismissal of the suit was not the final resolution of the summons.

The Commissioner contends that final resolution of the UBS John

Doe summons occurred when the IRS formally withdrew the summons

on November 15, 2010, after receiving the requested records from UBS

through the means agreed to in the U.S.-Switzerland Agreement. The

Lamprechts do not assert (nor make any showing of) an earlier date by

which UBS had “fully complied” with the summons and “all appeals or

requests for review” had been “disposed of”. Accordingly, on the record

before us, we hold that final resolution occurred upon withdrawal of the

26 Applicable as of April 30, 2008.

Treas. Reg. § 301.7609-5(f).

34

[*34] summons on November 15, 2010. Accordingly, the periods of

limitation for assessment of tax for 2006 and 2007 were suspended by

section 7609(e) from January 21, 2009, to November 15, 2010 (i.e., for

664 days), and thereafter the periods of limitation for assessment of tax

(as suspended) were set to expire on February 7, 2015 (for 2006), and

February 7, 2016 (for 2007). Before those expiration dates, the IRS

mailed the NOD to the Lamprechts on January 9, 2015, within the

statutory period for assessment, and therefore assessment of the

section 6662 accuracy-related penalties for 2006 and 2007 is not barred

by the statute of limitations.

III.

Conclusion

Finding no genuine dispute of material fact, we will grant the

Commissioner’s motion for summary judgment, will deny the

Lamprechts’ motion for summary judgment, and will enter decision for

the Commissioner as a matter of law.

To reflect the foregoing,

An appropriate order and decision will be entered.