Tax Alert | Ulises Ruiz | May 09, 2024

The DC Circuit has overturned the Tax Court decision on Farhy v. Commissioner. The ruling issued on May 3, 2024, holds that the Internal Revenue Service has authority to assess penalties for failure to file Form 5471. The ruling reverses the Tax Court Decision from April 2, 2023, and remands the Tax Court to enter a decision in favor of the Internal Revenue Service. For information on the original Tax Court decision please refer to the Prager Metis alert from April 12, 2023. 1

At issues is whether the government has authority to assess penalties for failure to file Form 5471 or whether it must file a petition before a Federal Court to assess the penalties.

The ruling by the DC Circuit is based on the premise that Congress intended penalties under IRC Section 6038(b) to be assessable.

This ruling does not necessarily end the litigation on this issue as the taxpayer may request a review of the decision En Banc by the DC Circuit and may eventually request Certiorari by the Supreme Court of Justice.

Taxpayers with compliance issues may still use voluntary disclosure programs such as the International Streamlined Filing Compliance Procedures and the Delinquent International Information Return Submission Procedures. These programs can help taxpayers get current with their tax obligations with reduced penalties (or without penalties in some instances) and costs.

Taxpayers with International Tax Reporting issues should contact a Prager Metis professional for assistance.


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