In December, the IRS posted to its Web site guidance encouraging taxpayers to submit delinquent Forms 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, before Jan. 1, 2009—the date on which the Service began to automatically assert appropriate penalties under IRC § 6038 on late-filed Forms 1120, U.S. Corporation Income Tax Return, with Forms 5471 attached. In August 2008, the IRS began mailing “soft letters” to corporations that had, during the past two years, filed a late Form 1120 that included at least one Form 5471, to inform them of the new automatic penalty assertion procedures.
Although the Service has not historically focused on section 6038 penalties for late-filed Forms 1120 with Forms 5471 attached, the increased number of Forms 1120 being filed electronically has enabled the IRS to determine quickly which of these returns are late filed and therefore potentially subject to penalty. The automatic assertion program seems to be one way that the IRS is responding to criticism by the Treasury Inspector General for Tax Administration of the Service’s failure to appropriately assess penalties.
It is interesting that this published guidance went beyond late-filed Forms 1120 by encouraging taxpayers to submit before Jan. 1, 2009, all delinquent Forms 5471 for prior years. This could be an indication that the Service will be more lenient regarding reasonable cause for late filing for forms filed before that date. It also could be an indication that the Service will be encouraging its examiners to look for delinquent Forms 5471, as well as other international forms, and assert relevant penalties during examinations.
For more on this topic, see the article by John Keenan and Vibhuti Patel, “IRS Changes Policy for Asserting Penalties for Late-Filed Form 5471,” in the January 2009 issue of The Tax Adviser.
Gurene, CPA, Ernst & Young LLP, San Antonio, Texas.