2024-05-21-KPMG_Global-United_States_–_D.C._Circuit_Reaffirms_IRS_Statutory_Authority_to_Assess_Penalties_for_Failure_to_File_Form_5471_3页_201kb

GMS Flash Alert Summary

Key Changes

• The U.S. Court of Appeals for the D.C. Circuit overturned a prior Tax Court ruling in Alon Farhy v. Commissioner, reaffirming the IRS' statutory authority to assess penalties for willful failure to file Form 5471.

Background

• The case involved a taxpayer who wholly owned foreign corporations in Belize and failed to file the required Form 5471, leading to a penalty assessment of nearly $500,000 after a court found the omission willful.

Implications

• Taxpayers face automatic penalties for non-compliance with international information reporting, even if due to inexperience or oversight.
• This ruling applies broadly to other forms like Form 8938 and Form 3520, affecting globally mobile employees and individuals with foreign assets.

KPMG Recommendation

• Taxpayers should diligently report foreign holdings to avoid IRS penalties, as relief based on reasonable cause may not prevent assessment.