Top of page

Article United States: Court Upholds Penalties for Hiding Taxable Income in Foreign Bank Accounts

On April 23, 2024, the United States Court of Appeals for the District of Columbia upheld $500,000 in penalties against two Swiss citizens who filed tax returns while residing in the United States without disclosing several millions of dollars in taxable income deposited in Swiss bank accounts. (Lamprecht v. Comm’r, no. 22-1308 (D.C. Cir. Apr. 23, 2024).)

The Lamprechts are Swiss citizens who resided in the U.S. during 2006 and 2007. During these two years, they underreported their taxable income by filing returns with the Internal Revenue Service (IRS) representing that they had no foreign bank accounts. To the contrary, they had millions in accounts with the Swiss bank UBS. Filing a return with undisclosed foreign financial assets is subject to penalty under Internal Revenue Code (I.R.C.) § 6662.

During the time of the taxpayers’ residence in the United States, a whistleblower informed the United States Department of Justice that the Swiss bank UBS Group AG was enabling wealthy taxpayers to evade taxes through offshore accounts. The Federal Bureau of Investigation began a criminal investigation, and the IRS issued a “John Doe summons” to UBS to obtain tax and bank account information of the unknown U.S. taxpayers who had UBS bank accounts. In February 2009, these actions and investigations resulted in a deferred prosecution agreement between UBS and the Justice Department in exchange for UBS disclosing the names and accounts of U.S. taxpayers. Subsequently, the United States and Switzerland entered into an agreement to settle the tax evasion lawsuits against UBS and to establish a formal system of disclosure. For more detail, please see the following Global Legal Monitor articles:

By November 2010, the exchange of information between UBS and the IRS was complete, and the IRS formally withdrew the John Doe summons.

Shortly thereafter, the Lamprechts amended their 2006 and 2007 tax returns to disclose their previously-unreported taxable income contained in their UBS accounts and paid $2.5 million in back taxes. Despite the amended returns and complete payment of the taxes, the IRS assessed $500,000 in penalties under I.R.C. § 6662 for the inaccurate statements in the original returns.

The Lamprechts challenged the penalty assessment on the grounds that the IRS did not follow proper procedures; that they voluntarily amended their own tax returns before the IRS acted; and that the statute of limitations for assessing accuracy penalties had run on the two tax years.

The Court of Appeals disagreed and upheld the penalty. First, it held that the IRS followed proper procedures, because as required by I.R.C. § 6751(b)(1), the tax examiner’s supervisor properly signed and approved the initial determination of the tax penalty assessment.

Second, the court found that although the Lamprechts filed amended returns and paid the taxes due, they filed corrected returns only after the John Doe summons was issued. Penalties for filing inaccurate returns will not be imposed when a taxpayer files a timely “qualified amended return” that corrects the false statements. The court noted that the Lamprechts’ “corrected 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.” Accordingly, the returns were filed too late to be “qualified amended returns” under 26 C.F.R. § 1.6664-2(c)(3)(i)(D)(1), which would have protected the taxpayers from the imposition of the penalty.

Third, the court ruled that the issuance of the John Doe summons suspended the statute of limitations under I.R.C. § 7609(e)(2).

Jason Zarin, Law Library of Congress
June 5, 2024

Read more Global Legal Monitor articles.

About this Item

Title

  • United States: Court Upholds Penalties for Hiding Taxable Income in Foreign Bank Accounts

Online Format

  • web page

Rights & Access

Publications of the Library of Congress are works of the United States Government as defined in the United States Code 17 U.S.C. §105 and therefore are not subject to copyright and are free to use and reuse.  The Library of Congress has no objection to the international use and reuse of Library U.S. Government works on loc.gov. These works are also available for worldwide use and reuse under CC0 1.0 Universal. 

More about Copyright and other Restrictions.

For guidance about compiling full citations consult Citing Primary Sources.

Credit Line: Law Library of Congress

Cite This Item

Citations are generated automatically from bibliographic data as a convenience, and may not be complete or accurate.

Chicago citation style:

Zarin, Jason. United States: Court Upholds Penalties for Hiding Taxable Income in Foreign Bank Accounts. 2024. Web Page. https://www.loc.gov/item/global-legal-monitor/2024-06-04/united-states-court-upholds-penalties-for-hiding-taxable-income-in-foreign-bank-accounts/.

APA citation style:

Zarin, J. (2024) United States: Court Upholds Penalties for Hiding Taxable Income in Foreign Bank Accounts. [Web Page] Retrieved from the Library of Congress, https://www.loc.gov/item/global-legal-monitor/2024-06-04/united-states-court-upholds-penalties-for-hiding-taxable-income-in-foreign-bank-accounts/.

MLA citation style:

Zarin, Jason. United States: Court Upholds Penalties for Hiding Taxable Income in Foreign Bank Accounts. 2024. Web Page. Retrieved from the Library of Congress, <www.loc.gov/item/global-legal-monitor/2024-06-04/united-states-court-upholds-penalties-for-hiding-taxable-income-in-foreign-bank-accounts/>.