A few days after President Donald Trump’s inauguration, the IRS issued a memo instructing financial managers to avoid making the annual financial disclosure required by law.
In the memo, the Internal Revenue Service (IRS) warned managers that the IRS would “take enforcement action if you fail to report your financial interest in or ownership of a stock, bond, mutual fund, mutual funds, or other asset, whether or not you are required to report it on Form 1040 or otherwise.”
The IRS guidance also included a “rule of thumb” that stated that a financial manager who did not disclose his or her interest in a stock could be fined up to $10,000 per violation.
The IRS, however, did not provide any specific examples of what those penalties would be.
And the IRS has since said that the guidance is “not intended to impose an individual mandate.”
But some financial managers are using the IRS guidance to skirt the reporting requirements.
A group of 30 former and current federal financial regulators filed a federal class-action lawsuit this week on behalf of former financial regulators who lost their jobs due to the IRS’ guidance.
The lawsuit, filed in U.S. District Court in Brooklyn, claims that the agency’s guidance was intended to “make it impossible for many financial managers, especially those with small investment portfolios and high fees, to report their financial interests in or control of the company’s stock, stock options, or preferred stock.”
The lawsuit claims that many financial professionals “simply do not understand the legal requirements” and “are failing to comply with the requirements of their federal regulations.”
The lawsuit also claims that “financial advisors and managers may be reluctant to disclose their financial interest” and that “this could lead to substantial penalties for those who fail to disclose such interests.”
The complaint also claims the IRS “has failed to provide clear guidance” on how it is going to enforce the IRS’s financial disclosure guidelines.
The IRS said it will respond to the lawsuit “within the next 90 days.”
The agency has not yet responded to CNN’s request for comment.