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Ca. Tax Lawyer 2018, Vol. 26 No. 4

Internal Revenue Code Sections Dealing with International Disclosure Compliance Should Be Amended to Allow for a Consistent Reasonable Cause Exception, a Consistent Maximum Penalty Amount, and to Require Notice Be Sent to The Taxpayers’ Last Known Address1

By Lisa O. Nelson & Jonathan T. Amitrano2

EXECUTIVE SUMMARY

The Internal Revenue Service ("IRS") is increasingly focusing on international tax compliance. The frequency of penalty assessments for failure to file information returns have greatly increased over recent years. At issue in our proposal are Internal Revenue Code ("Code") sections 6038, 6038A, 6038D, 6677, and 6679 (the "Code Sections at Issue"), and the continuation penalty associated with each of these Code sections. In situations where a taxpayer fails to file an information return as required by the Code Sections at Issue, the IRS may assess a penalty. All of these Code sections provide that if a taxpayer does not file the required Form(s),3 the taxpayer is liable for a $10,000 penalty.4 If notice is given to the taxpayer that they are required to file a specific information return, and if the taxpayer does not file the requested return within 90 days, the IRS may assess an additional penalty every 30 days thereafter. This penalty which continues to increase every thirty days is often referred to as a "continuation penalty".

The IRS should be required to mail the requisite notice telling the taxpayer that they need to file a specific Form, to the taxpayers’ last known address, as defined in Treasury Regulation section 301.6212-2.

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