Client Alert: IRS International Tax Reporting Penalty Update and Related Summer Delights for Globe Trotting Clients
Date: August 25, 2022
- On August 24, in an effort to provide additional relief to struggling taxpayers coming out of the Global COVID-19 Pandemic, the IRS issued, IRS Notice 2022-36, which provides relief from failure to file penalties and certain international informational returns with respect to tax returns for taxable years 2019 and 2020 that are filed on or before September 30, 2022. The notice also provides relief from certain information return penalties with respect to taxable year 2019 returns that were filed on or before August 1, 2020, and with respect to taxable year 2020 returns that were filed on or before August 1, 2021. What this means is that relevant penalties will be waived or, to the extent previously assessed, abated, refunded, or credited. Specifically, this relief in the international tax reporting area would apply to taxpayers who would have filed or needed to have filed the following IRS Forms:
- 1040-NR, U.S. Nonresident Alien Income Tax Return;
- 1120-F, U.S. Income Tax Return of a Foreign Corporation;
- 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation;
- 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations (where penalties begin at $10,000 per year per form not filed);
- 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or Foreign Corporation Engaged in a U.S. Trade or Business (where penalties begin at $25,000 per year per form not filed);
- 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts (where penalties may begin at $10,000 or a percentage of the gross value gifted (35%) or distributed (35%) or assets considered owned (5%)); and
- 3520A, Annual Information Return of Foreign Trust with a U.S. Owner (where penalties start at $10,000 or may be assessed at 5% of the value of the portion of the trust assets treated as owned by the U.S. person).
- Treaty Developments of Interest –
- On August 23, 2022, U.S. Treasury Secretary urged for the U.S. Senate to move along the U.S.-Chile Income Tax Treaty, which if approved and ratified would be the third active treaty the U.S. would have with a Latin America country, the others being with Mexico and Venezuela. Back in March of this year, the U.S. Senate Foreign Relations Committee approved the U.S.-Chile Income Tax Treaty.
- Earlier this summer, on July 8, 2022, the U.S. notified Hungary of its termination of its income tax treaty with that nation effective on January 8, 2023, with the treaty ceasing to have effect for withholding taxes on January 1, 2024. For other taxes, the treaty will have effect with respect to periods beginning on or after January 1, 2024.
In a separate Client Alert coming in the following days, Whiteford’s tax team will address the impact of the recently enacted Inflation Reduction Act on taxpayers that are foreign parented, and developments in the area of foreign bank account reporting (commonly known as “FBARs”).
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.