Extension of assessment period for certain foreign transfers applies only to required information, not entire return.

• Author: Fiore, Nicholas J.
• Position: Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business

On March 15,2000, taxpayer T timely filed Form 1120 for calendar year 1999 but failed to attach Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business (as required by Regs. Sec. 1.6038A-2(a)). On Feb. 15, 2001, during examination, T submitted Form 5472, reporting in Part IV several 1999 transactions with foreign related parties. In September 2003, Examination discovers an error in T's 1999 deductions for depreciation on assets unrelated to any of the transactions reportable on Form 5472.

Issue: Assuming no other adjustment to the statute of limitations (SOL) under Sec. 6501 occurs:

1. Has the IRS lost its right to assert any deficiency attributable to depreciation after March 15, 2003 (the expiration of the SOL without regard to Sec. 6501(c)(8)), or has Sec. 6501(c)(8) operated to extend the period to Feb. 15, 2004 (three years after submission of the required Form 5472 information)?

2. Is the result different if Part IV of Form 5472 was not required to be completed, because all reportable transactions were with domestic related parties?

Analysis

Sec. 6501(c)(8) provides as follows:

(8) FAILURE TO NOTIFY SECRETARY OF CERTAIN FOREIGN TRANSFERS.--In the case of any information which is required to be reported to the Secretary under section 6038, 6038A, 6038B, 6046, 6046A or 6048, the time for assessment of any tax imposed by this title with respect to any event or period to which such information relates shall not expire before the date which is 3 years after the date on which the Secretary is furnished the information required to be reported.

The Senate Finance Committee states in its explanation of this provision:

[I]n the case of a failure to report required information with respect to a foreign corporation, partnership, or trust, the statute of limitations with respect to any event or period to which such information relates [shall] not expire before the date that is three years after the date on which such information is provided.

The application of Sec. 6501(c)(8) was clarified in January 2000. In response to public comments on proposed regulations under Sec. 6038 relating to foreign corporations and foreign partnerships, the preamble to final regulations under Secs. 6038 and 6038B stated:

The IRS and Treasury wish to clarify that if a U.S. person fails to comply with sections 6038, 6038B, or 6046A, the extended statute of limitations provided by section 6501...