IRS Penalty on Foreign Corporation Reporting

In a shocking decision, the Tax Court in 2023 concluded the IRS could not collect penalties for failing to file Form 5471 which is used to report ownership of a foreign corporation.

The court concluded the IRS lacked the power to assess and collect Form 5471 penalties using its administrative powers. Instead, in order to collect Form 5471 penalties, the IRS would have to bring a civil suit against the taxpayer. [Farhy v. Commissioner, 160 T.C, No. 6 (April 3, 2023)]

The IRS appealed this decision and won.

The DC Circuit Court on May 3, 2024 ruled that the IRS has the authority to assess penalties for failing to report control of foreign businesses. [Farhy, (CA Dist Col 5/3/2024) No. 23-1179]