A recent Tax Court case called Lamprecht v. Commissioner dealt with a few issues that commonly arise for investors and taxpayers. Namely, the issues in question dealt with whether payments to correct tax liabilities could be considered qualified amended returns and whether accuracy-related penalties were properly issued.
This case did have some other interesting issues we might touch on as well. However, these are the core issues that are most important to our clients.
If you are facing criminal tax investigation, audits, or potential criminal charges for unreported offshore investments and unpaid taxes, contact the Dual Licensed Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing. Contact us today at (800) 681-1295 or schedule online here for a reduced rate initial consultation.
Lamprecht Case Facts and Outcome
In 2006 and 2007, the Lamprechts (Johannes and Linda) lived in the U.S. and reportedly failed to include a portion of their income on their tax returns because they treated it as though it was sourced overseas. They eventually filed amended returns to try to fix these issues in 2010, but that was after subpoenas had already been issued to their bank in Switzerland in 2008 by the IRS. Ultimately, the Lamprechts were issued a penalty for failing to accurately report their income, and their amended returns were not protected as “qualified amended returns.”
When Qualified Amended Returns are Protected
A qualified amended return is a specific method of getting your tax bill cleared up while avoiding potential penalties. If you file an amended return to voluntarily fix outstanding tax issues and pay the IRS what you owe them before you are ever contacted or audited, then the IRS should treat these amendments as a “qualified amended return,” and they should not seek penalties against you.
Our Dual Licensed Tax Attorneys and CPAs often advise clients to file qualified amended returns, but these filings are often complicated. As in this Lamprecht case, there might be IRS activity that you do not know about that could block your return from being considered a qualified amended return.
If the IRS has actually begun enforcement endeavors and has already contacted you or certain other parties to seek the back taxes, then you cannot file a qualified amended return. This is all governed by Tax Code § 1.6664-2(c)(3).
In the Lamprecht case, the Tax Court held that the IRS issuing subpoenas to the Lamprechts’ bank blocked their amended returns from being qualified amended returns. Our Tax Attorneys are often aware of potential obstacles like this that might make it harder to amend your taxes and might make filing an amended return the wrong move to try to avoid tax penalties.
Essentially, once the IRS gets a whiff of potential tax evasion or tax fraud and starts writing letters about the back taxes, further attempts to get right by amended tax returns are not protected. If you have already been contacted by the IRS or suspect that background criminal tax investigations or civil enforcement actions are taking place, it is vital to work with a lawyer to amend your tax returns and avoid criminal tax prosecution through other methods.
Underpayment and FBAR Violations
It appears that this underpayment was ultimately discovered because the Lamprechts had undisclosed foreign accounts in 2006 and 2007 that should have been reported on an FBAR and reported for income tax purposes. This means that the IRS contacted their bank in Switzerland and ultimately discovered the undisclosed accounts and related additional income.
Our international tax attorneys readily handle any FBAR and foreign reporting requirement issues for our clients. Call us if you have any questions or think that you might have unreported foreign investments, businesses and taxable real estate holdings that need to be reported.
Accuracy-Related Penalties
An accuracy-related penalty typically comes in the form of an underpayment penalty. Any time the IRS finds that your taxes failed to include portions of your income, you can be assessed a penalty for the inaccuracy.
Slight underpayment due to negligence can result in some penalties, but more “substantial” understatement can result in higher fines. Typically, a “substantial” understatement is being short by $5,000 or 10% of your income, whichever is greater. An accuracy-related penalty is typically 20% of the understatement. So, if you failed to report $15,000 worth of income, you’d pay a penalty of 20% of that $15,000 ($3,000).
In the Lamprecht case, they were looking at a penalty of $124,294 for 2006 and $376,449 for 2007. These penalties also typically include interest, but at these values, this was by no means a low-dollar case the IRS was pursuing. Their 2007 return, for example, was short by about $1 million. Anyone with potential underpayment of this magnitude should certainly be aware that the IRS might try to collect from them next and that they should contact a tax attorney for help filing qualified amended returns immediately before it is too late. We may also have other techniques we can use to try to drive down your underpayment and correct previous tax problems.
In the end, the Tax Court did uphold these penalties. There were, however, some legal questions as to whether the penalties were assessed within the statute of limitations. Generally, Tax Code § 6501(a) gives the government only 3 years after the return was filed to assess penalties. Here, the penalties for 2006 and 2007 taxes were not assessed until 2010 and would have been blocked. The court held, however, that § 6501(e)(1)(A) has an exception for when the underpayment is over 25% that instead gives the government 6 years to pursue penalties. That was met in this case, putting the penalties within the statute of limitations.
Call Our Tax Attorneys and CPAs Today
If you are facing potential underpayment penalties, have any unreported offshore accounts, or have underpaid taxes, get help from our Dual Licensed Tax Attorneys and CPAs before taking any corrective measures. Call us today at (800) 681-1295 or schedule a reduced rate initial consultation online here.
As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.
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See our Foreign Audit Q and A Library
