Judge David Gustafson completes the saga of Johannes Lamprecht and Linda Lamprecht, T. C. Memo. 2022-91, filed 8/31/22. For those seeking backstory, I’ve done six (count ’em, six) blogposts featuring the Lamprechts’ duel with IRS, but Judge Gustafson outdoes me with complete list of his orders by reference to the docket, at p. 11, footnote 12.

The Lamprechts were Swiss nationals with US green cards for years at issue, who didn’t disclose their Swiss earnings on their US 1040s. But the famous Section 7609 John Doe subpoena to UBS, which kicked off OVDI, put Johannes and Linda on the IRS radar. Thereupon, Johannes and Linda filed amended returns, and paid up the $621K they owed for Year One, and the $1.8 million they owed for Year Two.

But they never paid the substantial understatement chops, claiming their amended returns were Section 6664 qualifying amended returns so they came clean before they were nailed, the 6SOL had run before the SNOD, and the Boss Hoss Section 6751(b) was defective.

Last one first. The RA used “‘Form 5345–D, “Examination Request-ERCS (Examination Returns Control System) Users’, requesting that the Lamprechts’ return for the [Year Two] be opened for xamination for the purpose of assessing the section 6662 accuracy-related penalty.” T. C. Memo. 2022-91, at p. 9. The RA later used the same form for Year Two. And both were signed off before Johannes and Linda heard Word One about chops. But Johannes and Linda claim RA should’a used a CPAF, per IRM.

Judge Gustafson: “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).” T. C. Memo. 2022-91, at p. 18, footnote 17.

 The IRM is not law, creates no obligation on IRS, nor creates any rights in petitioners.

The 7609 John Doe is complicated by the facts. UBS got its back up, and the Helvetian Confederation got its back up, so there was reference to the US-Swiss tax treaty after IRS went to USDC to enforce the subpoena. The US, UBS, and the Confederation stiped to dropping the enforcement proceeding, but not the subpoena. Bottom line is that there was compliance, and Johannes and Linda amended only after compliance. But how long was the tolling of 6SOL on account of noncompliance? Johannes’ and Linda’s argument that dropping enforcement ended the toll loses. Their argument that the subpoena was improper as a method of getting what IRS could’a gotten under the tax treaty also loses; using two methods to get discoverable material is OK. And query the standing of a party not subpoenaed or named in the subpoena to question the validity of a subpoena. So longer tolling, and 6SOL didn’t run when the SNOD for the chops issued.

Finally, the qualified amended return issue. Johannes and Linda rely on Reg. Section 1.6664-2(c)(3)(i)(D)(1), which says you’re not qualified if you claimed a tax benefit on the return you’re seeking to amend. They claim they took no benefit, only didn’t report income. Johannes said he didn’t think Swiss income was taxable to a US green cardholder.

Judge Gustafson says that Johannes was trying a defective Foreign Earned Income Exclusion. If allowed, it would make nonreporting and amending later better than reporting upfront and losing. Also, Johannes and Linda itemized their deductions, and the amended returns substantially increased the phaseouts of their Schedule As. So they did claim the benefit of the unphased deductions, which they had to amend away.

IRS gets summary J for the chops. And Johannes’ and Linda’s trusty attorney gets a Taishoff “Good Try.”