Relief from penalties for late-filed international information returns.

• Author: Rojas, Stephanie V.

Sec. 6038 requires every U.S. person to furnish, with respect to any foreign business entity that such person controls, the information fisted in Sec. 6038(a)(1). That information is reported on Form 5471, Information Return With Respect to Certain Foreign Corporations, and Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. Sec. 6038A requires any domestic corporation that is 25% foreign-owned to furnish the information fisted in Sec. 6038A(b)(l).That information is reported on Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.

Penalties apply for failure to report the information required under Secs. 6038 and 6038A by failing to timely file Form 5471, 5472, or 8865.

If a taxpayer fails to timely file Form 5471 or 8865, the IRS may assert a $10,000 penalty for each failure for each applicable annual accounting period, plus an additional $10,000 for each month the failure continues, beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $60,000 per return (initial penalty of $10,000 plus the continuation penalty maximum of $50,000 per return) (Sec. 6038(b)). If a taxpayer fails to timely file Form 5472, the IRS may assert a $10,000 penalty for each failure for each applicable tax year, plus an additional $10,000 for each month the failure continues, beginning 90 days after the taxpayer is notified of the delinquency. The statute does not provide a maximum penalty with respect to Form 5472 (Sec. 6038A(d)).

Note: A single failure to timely report Sec. 6038 or Sec. 6038A information causes a taxpayer's entire related federal income tax return to remain open for assessment indefinitely until the required information is provided to the IRS (Sec. 6501(c)(8)). A taxpayer can limit the extended assessment period to items that relate to the unreported Secs. 6038 and 6038A information if the taxpayer demonstrates that the reporting failure was due to reasonable cause.

Penalty Abatement vs. "Delinquent" Procedures

There are two procedural paths for a taxpayer that files a late Form 5471, 5472, or 8865. Which path may be available depends on whether the taxpayer (1) files the delinquent forms with an original, but untimely, federal income tax return or (2) files the delinquent forms with an amended income tax return and the original income tax return was timely filed.

1. Filing international information returns...