This three-part series takes a detailed look at civil penalties, particularly with respect to international information return Form 5471.
The statutory framework for civil penalties was discussed in Part One. We now focus on one specific penalty involving failure to furnish information to the IRS about certain foreign corporations that a U.S. person has an interest in. Part Two of this series focusses on penalty cases involving U.S. persons assessed an IRS Form 5471 penalty under §6038(b)(1), for failure to timely file the return.
Recent Developments
This is an evolving area of U.S. tax law. There have been notable developments in recent years, with several Form 5471 penalty cases having been seen by the United States Tax Court (‘tax court’).
Developments are being watched closely by taxpayers and their representatives, notably U.S. tax attorneys.
The heart of the current issue is whether the IRS has authority under §6038(b)(1) to automatically assess a penalty. This issue is contingent on developments expected to unfold during 2026 – and possibly later. This will depend on the timing of any appeals that the IRS might file in any one of the appellant courts. It also will depend on whether a case is taken to the U.S. Supreme Court. If so, it could take a number of years to be heard.
There is a lot at stake here for taxpayers with Form 5471 penalties which have been assessed but not paid.
