Bloomberg Tax Quotes Benjamin Eisenstat and Jonathan Black on Tax Court Ruling Potentially Increases Penalty Challenges

A recent US Tax Court ruling that the IRS can’t assert penalties for failure to report interests in foreign-owned businesses will potentially open the door for more penalty challenges, tax pros say.

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“This is opening the door for similar challenges, and the IRS really likes to stack international information reporting penalties onto taxpayers,” said Benjamin Eisenstat, a tax controversy attorney at Caplin & Drysdale. “It’s been one of their big ways of collecting revenue in ways that are hard to challenge, and this really puts an arrow in the taxpayer’s quiver.”

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“This could be one of those situations where the IRS just takes a contrary view, and they keep getting smacked down over and over again,” Eisenstat said.

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Failing to disclose foreign business interests doesn’t automatically mean that taxpayers are offshoring money, according to Caplin & Drysdale tax litigation attorney Jonathan Black, who noted that information returns can be missed in various ways.

“I’m not sure if this is something the IRS should automatically assess and collect like in the way it does in other things,” Black said. “I think they really should only be applied in very special circumstances.”

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