IRS Ruled Just in Pursuing Years of Underpayment and Fraud

By January 11, 2023 No Comments

Long-term inadequate filing of FBARs just returns lets the IRS loose to pursue fraud –international lack of cooperation and even death notwithstanding, as a recent case shows.

In Estate of Clemons v. Comm’r of Internal Revenue, the U.S. Tax Court has ruled that software entrepreneur Brett Clemons Sr., a holder of overseas accounts, underpaid his tax for several years and that his underpayments were due to fraud.


An American born in Florida, Clemons built a successful programming career and, in the mid-1980s, had started his own company and was soon working as an independent contractor for Hewlett-Packard U.S. By 2001 he was married with two children and opened an account with Union Bank of Switzerland (UBS).

He hid the account from his wife because he intended to get a divorce. The account had several features that helped Clemons (the account’s sole owner and signatory) hide it, and he paid UBS to hold his correspondence and to destroy any unclaimed mail after three years.

In fact, UBS eventually ran afoul of American authorities for hiding accounts. After the U.S. and Switzerland entered a tax treaty in 1996 to exchange taxpayer information, UBS entered into a similar agreement with the IRS. But investigation later showed that in 2001 or 2002, UBS began dividing American clients into two groups: those willing to report their accounts to the IRS and those unwilling. UBS helped the “unwilling” group maintain anonymity and evade large amounts of tax. The U.S. Department of Justice later launched a well-publicized investigation.

Funneling income for years

During his first two years as an accountholder, Clemons deposited more than $400,000 with UBS for investment in market funds, bonds and private equity funds, among others. He also periodically traveled to Switzerland and withdrew funds in the form of checks. When he divorced in 2003, he did not disclose his UBS account to his wife or to the Florida court that oversaw the divorce.


From 2003 through 2009, he funneled income (sometimes more than $250,000 annually, some from companies outside the U.S.) into foreign accounts. Clemons did not report much of it on his self-prepared U.S. tax returns, which were sometimes late (he also attempted to declare a NOL associated with a failed ranching business three times). He did not report investment income earned in those foreign accounts, denied ever holding any foreign accounts and filed no FBARs. During those years, Clemons frequently visited Switzerland to make in-person withdrawals and later opened a German bank account after getting work in that country.



When in 2008 UBS informed him of new reporting requirements for U.S. citizens, Clemons closed that account ($550,063) and opened another at Dresdner Bank (Switzerland). He aggressively used expenses to reduce his income reported and reported only interest from the German bank account on his 2008 returns, inconsistently reported overseas income for 2009 and filed no timely FBAR for either year.



After an IRS summons, UBS turned over records revealing Clemons’s account. In 2011, after the examination began, Clemons filed delinquent FBARs for 2005 through 2009 that were false, incomplete and misleading. He also lied to revenue agents about the UBS account concerning the nature of the account and about deposits and withdrawals, among other details, and later answered incompletely when given information document requests (eventually his attorney answered when given a third-party summons).

At issue

The IRS issued a notice of deficiency to Clemons for his 2003 through 2009 tax years, seeking to impose fraud penalties. The notice also determined that Clemons had omitted substantial amounts of gross income for those tax years.

In March 2021, after filing his petition and after trial, Clemons died; his estate was replaced as the true party in interest.

The key issues the Tax Court considered are whether the statute of limitations barred the IRS from assessing tax related to 2003 through 2009; whether Clemons is liable for enhanced fraud penalties for 2003 through 2009; and whether IRS determinations increasing his gross income and disallowing certain Schedule C deductions were correct.

The Court ruled that the statute of limitations did not protect Clemons because he filed fraudulent returns, that he was liable for fraud penalties for those years and that he offered insufficient evidence to rebut the IRS presumption when it issued its notice of deficiency.

This case clearly demonstrates that not filing FBARs and other information returns (or filing late or inaccurately) just gives the IRS more leverage when claiming that a taxpayer is trying to conceal foreign assets – and more power to level fraud penalties.


Your tax specialist needs to be able to handle these and many other issues of wealth, foreign and domestic holdings and income and tax enforcement. If we can help, please let us know.

About the Author 

Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high net worth families and their advisors. Alicea has more than 17 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm. Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.

Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S. Alicea is fluent in Spanish and has a working knowledge of Portuguese.

Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA), the International Fiscal Association (IFA), a member of Clarkson Hyde Global, a world-wide association of accountants, auditors, tax specialists and business advisors and the International Advisory Experts (IAE).

Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA Forty Under 40 Award. She was selected as someone that has notable skills and is visibly making a difference in the accounting profession. Alicea has also been recognized as a leading expert for Tax advice and she has been invited to join Advisory Excellence, as their exclusively recommended tax expert in the USA.

In 2021 and 2022, Alicea was the Gold and Silver Winner, respectively, of Citywealth’s Powerwomen Awards in the category USA – Woman of the Year – Business Growth (Boutique). Furthermore, Alicea is currently listed in the Global Elite Directory 2022, which is an annual exclusive directory of the world’s elite lawyers and outstanding wealth advisors advising ultra-high net-worth clients.

Please note: This content is intended for informational purposes only and is not a replacement for professional accounting or tax preparatory services. Consult your own accounting, tax, and legal professionals for advice related to your individual situation. Any copy or reproduction of our presentation is expressly prohibited. Any names or situations have been made up for illustrative purposes — any similarities found in real life are purely coincidental.