Benjamin Eisenstat Speaks to Bloomberg on Reporting Penalties After Tax Court Ruling

Taxpayers facing IRS penalties for failing to report their foreign holdings are being advised to either ignore or pay the penalties depending on their circumstances, pending the outcome of a court case.

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Taxpayers should consider their options if they are facing penalties for failing to file forms involving other types of international reporting obligations and unclear statutory language, like Form 5472 and Form 3520, tax lawyers said.

Those forms cover corporations involved in foreign business and reporting transactions with foreign trusts, respectively. Successful arguments pushing back on the IRS in the Farhy case could affect the forms, tax lawyers added.

If Farhy’s legal position prevails, it could eventually harm the IRS’ macro-policy push to raise revenues by toughening international reporting penalties, said Benjamin Eisenstat, a Member of Caplin & Drysdale.

“This is really going to put a damper in that effort because it’s going to make it much harder for them to collect,” Eisenstat said.

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