New tax law: limited relief provided by recent tax law change.

• Author: Josephs, Stuart R.
• Position: FedTax

The 2010 Education Jobs and Medicaid Assistance Act (the "Act"), signed into law Aug. 10, 2010 as P.L. 111-226, contains some favorable treatment regarding the extended statute of limitations.

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Pre-Existing Law

Taxes generally must be assessed within three years after a return is filed. Returns filed before their clue date are deemed filed on that date.

IRC See. 6501(c)(8) provided an exception to this general three-year limitations period due to failures to provide information on cross-border transactions or foreign assets. Under this exception, as amended by the 2010 Hiring Incentives to Restore Employment Act (P.L. 111-147), the limitations period for tax assessments did not expire any earlier than three years after the required information regarding certain cross-border transactions or foreign assets was furnished to (he IRS by the person required to file the return. (See California CPA, August 2010, Page 14.)

The following information reporting is required:

IRS Form 926: For U.S. transfers of property to foreign corporations (IRC Sec. 6038B).

IRS Form 3520: For transactions with foreign trusts and receipt of certain foreign gifts (IRC Sec. 6048).

IRS Form 3520-A: For foreign trusts with U.S. owners (IRC Sec. 6048).

IRS Form 5471: For U.S. persons regarding certain foreign corporations (IRC Sees. 6038 and 6046).

IRS Form 5472: For 25 percent foreign-owned U.S. corporations or foreign corporations engaged in a U.S. business (IRC Sec. 6038A).

IRS Form 8621: For shareholders of passive foreign investment companies or qualified electing funds [IRC Sec. 1295(b)].

IRS Form 8858: For US. persons with foreign disregarded entities (IRC Sec. 6038).

IRS Form 8865: For U.S. persons with certain foreign partnerships (IRC Sees. 6038 and 6046A).

IRS form not yet issued: To disclose interest in "specified financial assets" (Recent IRC Sec. 6038D).

Generally, this information reporting is due with the taxpayer's return. Thus, the special three-year limitations period commences when a timely and complete return, including all information reporting is filed. Without the inclusion of the information reporting with the income tax return, the limitations period does not commence until the information reports are subsequently filed with the IRS, even though the return was already filed.

The taxes that could be assessed during this suspended/extended limitations period were not limited to taxes attributable to the adjustments to items...