Foreign Late Filing Notices: Effective Responses for Penalty Abatement

International tax practitioners routinely receive late and non-filing notices for multinational clients. With the number of required forms, 5471, 8938, 3520, and 3520-A to name a few, reporting obligations and filing deadlines are easily missed. Penalties for noncompliance are steep; most familiar is the minimum penalty of $10,000 for even non-willful FBAR violations.

The IRS Taxpayer Advocate Service included the IRS' assessment of international penalties on its Most Serious Problems list, stating: "The IRS's treatment of IRC Sections 6038 and 6038A foreign information reporting penalties as systemically assessable is legally unsupportable, administratively problematic, and imposes costs, delays, and stress for taxpayers." What is the best response to these notices for the most favorable and efficient outcome?

The Internal Revenue Manual (IRM) does offer first-time penalty abatement relief for certain foreign information returns; however, the manual includes additional stipulations for foreign reporting not required for domestic relief. Reasonable cause is also noted in the IRM and contains the other requirement that the taxpayer exercised "ordinary business care and prudence." Fortunately, the courts and the IRS often disagree on penalty assessments. However, this road can be time-consuming and costly. International tax advisers need to know what defenses are readily available to decrease the penalties routinely imposed on numerous international reporting forms.

Listen as our panel of international tax experts reviews the current state of penalty relief for foreign reporting noncompliance, including how to appropriately respond to notices received to mitigate the extraordinary burden these assessments place on taxpayers and their advisers.