Taxpayer Relief: Court Ruling on Form 5471 Filing Failure 

Taxpayer Relief: Court Ruling on Form 5471 Filing Failure 
April 12, 2023

The United States Tax Court recently determined that the IRS does not have the authority to issue penalties to taxpayers who fail to file Form 5471, the Information Return of US Persons concerning Certain Foreign Corporations.

This form is used to report interests in foreign corporations. The IRS strictly enforces late filing penalties, with civil tax penalties of up to $10,000 per year for non-compliance. However, the recent court ruling in Farhy v Commissioner (April 3rd, 2023) challenges the IRS’s authority to impose automatic penalties without a court order.

The Farhy v Commissioner ruling is expected to impact taxpayers contesting or paying penalties for late-filed Form 5471, with potentially widespread implications. Taxpayers may seek refunds, making this a significant victory.

It’s important to note that this ruling does not absolve taxpayers from their international reporting obligations. Taxpayers must comply with international information return filing requirements for foreign financial accounts or assets to avoid legal complications. Professional advice should be sought if unsure about tax obligations.

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