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BEWARE OF IRS 2009 'DIRTY DOZEN' TAX SCAMS.
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INFORMATION
INTERNAL REVENUE SERVICE CHANGES THEIR
POLICY FOR EACH FORM 5471 INCLUDED WITH A LATE FILED FORM 1120 TO
AUTOMATICALLY ASSERT A $10,000 PENALTY
Effective January 1, 2009, the Internal Revenue Service will
automatically assert penalties on U.S. Corporation Income Tax
Returns (Form 1120) that include Information Return of U.S. Persons
with Respect to Certain Foreign Corporations (Form 5471). Notice
letters sent by the Internal Revenue Service to certain late filers
of these forms contained this significant change. It is interesting
to note that this change does not preclude the Service from
asserting penalties prior to January 1, 2009 or from asserting
additional penalties if the failure to file is not corrected within
the time allotted.
When a person has a foreign financial corporate interest Form 5471
must be filed with a U.S. person’s tax return whether or not the
person has a prescribed level of direct and/or indirect control over
a foreign corporation. Form 5471 requires disclosure of pertinent
information about the taxpayer as well as the foreign entity and
must be filed with the taxpayer’s U.S. tax return by the due date,
including extensions of time to file tax returns. Even if tax is not
due on the U.S. tax return, the penalty for filing a late Form 5471
still applies. Until now, the Internal Revenue Service has not
automatically asserted Section 6038 penalties.
For each Form 5471, Section 6038(b)(1) $10,000 penalty applies to
each form filed with a late U.S. tax return. Furthermore, Section
6038(c) provides for a 10 percent reduction of the foreign taxes
available for credit under Sections 901, 902 and 960. In some
instances, by showing that reasonable cause existed in failing to
file Form 5471 timely, Section 6038 states that penalties may be
avoidable.
At this time, it is unknown if the Internal Revenue Service will
expand the focus to consider other information reporting forms such
as Form 8858, Information Return of U.S. Persons with Respect to
Foreign Disregarded Entities, Form 8865, Return of U.S. Persons with
Respect to Certain Foreign Partnerships or to taxpayers other than
U.S. Corporations. |