The recent ruling of the United States Tax Court in Farhy v. Commissioner provides some interesting insights for US shareholders of foreign corporations, particularly in relation to Internal Revenue Code Section 6038. This section outlines penalties for failure to file Form 5471, but it appears that the ruling does not give the IRS any explicit power to impose or collect these penalties.
Of course, this leaves us with some questions. What does this mean for taxpayers who have already been penalized for not filing Form 5471? And what about those who haven’t filed yet and haven’t faced any penalties (or those who may not file in the future)? The decision could also have implications for the IRS’ ability to assess and collect penalties for other information forms, like Form 926 or 8938.
It’s worth noting that the IRS may choose to appeal the Tax Court’s decision. In the meantime, it’s possible that the agency could still pursue penalties through civil suits against taxpayers who are in violation of IRC Sec 6038.
Overall, this ruling raises some interesting points to consider and may provide a window of opportunity for late or non-filers to get compliant without facing penalties.
Thanks to Baker & Mckenzie for sharing this article.
USTS
Learn how USTS can assist you with 6038 and other complicated issues, please contact us with questions at info@ustaxservices.ch
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