TAXLITIGATOR – Tax Controversy (Civil & Criminal) Report

The Tax Court has determined that the IRS lacks authority to assess penalties under IRC § 6038(b) for failing to file Forms 5471, in a recent decision, Farhy v. Commissioner, 160 T.C. No. 6 (T.C. April 3, 2023). As further held by the court, absent such an assessment, the IRS has no administrative authority to pursue collection, including filing of Notices of Federal Tax Liens or issuing Notices of Intent to Levy. While the Tax Court’s decision is limited to the IRC § 6038(b) penalty, its reasoning is applicable to all foreign information return reporting penalties contained in IRC Chapter 61A. Both determinations now raise a flurry of questions as to what actions taxpayers should consider when receiving a penalty notice for the failure to file informational returns, such as the Form 5471, from the IRS.

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