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Washington Tax Alert April 22, 2010

Taxpayers that fail to file foreign information returns are subject to significant penalties, and the IRS has become tougher in enforcing the penalty provisions. Foreign information reporting includes:

  • Form 5471 (U.S. persons that own stock in a foreign corporation)
  • Form 5472 (transactions by a foreign corporation or a U.S. corporation with a 25% or greater foreign shareholder)
  • Form 8858 (ownership of foreign disregarded entities)
  • Form 8865 (foreign partnerships)
  • Form 3520 (foreign trusts)

In addition to penalties imposed for failure to file foreign information returns by the extended due date of the tax return, a provision in new legislation enacted on

March 18, 2010, the Hiring Incentives to Restore Employment Act, H.R. 2847, purports to extend the three-year statute of limitations for the taxpayer's entire tax return if the taxpayer fails to file a foreign information return. Previously, IRC § 6501(c)(8) extended the statute of limitations only for tax consequences related to the information that was required to be reported on the information return, not to the entire tax return.

This statutory change extends the assessment period for affected taxpayers, and has implications for financial statement reporting purposes.