{"id":1572,"date":"2017-06-29T19:53:32","date_gmt":"2017-06-29T19:53:32","guid":{"rendered":"http:\/\/www.patellawoffices.com\/blog\/?p=1572"},"modified":"2017-06-20T19:55:33","modified_gmt":"2017-06-20T19:55:33","slug":"new-irs-practice-unit-substantial-compliance-doctrine-international-information-return-penalties","status":"publish","type":"post","link":"https:\/\/patellawoffices.com\/blog\/planning-for-tax-minimization\/new-irs-practice-unit-substantial-compliance-doctrine-international-information-return-penalties\/","title":{"rendered":"New IRS practice unit: \u201cSubstantial compliance\u201d doctrine, international information return penalties"},"content":{"rendered":"

The IRS Large Business and International (LB&I) division last week\u00a0publicly released a \u201cpractice unit\u201d that addresses what the term “substantially complete” means with reference to international information return penalties, particularly Form 5471.<\/p>\n

The IRS recently released a new International Practice Unit (\u201cIPU\u201d) on failures to file form 5471.\u00a0 IPUs are meant to act as a guide for IRS examiners and give insight to taxpayers as to how the IRS will evaluate certain tax situations.\u00a0 The unit specifically deals with penalties associated with Internal Revenue Code \u00a7 6038, which assess a $10,000 penalty when certain forms are filed late, substantially incomplete, or not filed at all.\u00a0 Though the IPU specifically relates to Form 5471, Form 5472 is subject to the same penalties under the same code provision.<\/p>\n

Form 5471 is filed by U.S. taxpayers with respect to certain interests and transactions related to their ownership in foreign corporations.\u00a0 Conversely, Form 5472 is filed by either U.S. corporations with some foreign owners or a foreign corporation which engages in a U.S. trade or business.\u00a0 The Form 5472 filing obligation is triggered by certain transactions.<\/p>\n

The IPU focuses specifically on what information qualifies Form 5471 as being \u201csubstantially complete.\u201d\u00a0 It is important to note that neither the Internal Revenue Code nor the Treasury Regulations define \u201csubstantially complete\u201d for the purposes of Form 5471, but the IPU does provide situations and examples to illustrate the concept.<\/p>\n

The IPU is available on the IRS practice unit\u00a0webpage<\/a>\u00a0(release date of June 19, 2017).<\/p>\n

Substantial compliance doctrine<\/p>\n

International information returns must be substantially complete in order for the filer to have met its filing requirement. However, the terms \u201csubstantially complete\u201d and \u201csubstantially incomplete\u201d are not defined in the Code or regulations.<\/p>\n

As noted in the practice unit, if the filer of an information return did not submit a substantially complete return, then penalties under sections 6038, 6038A, and 6046 may apply. The practice unit provides informal guidance for IRS agents examining a U.S. entity with foreign ownership or foreign-owned U.S. businesses, for purposes of determining whether the required international information return is substantially complete so that the filing requirement is met.<\/p>\n

The practice unit begins by explaining the substantial compliance doctrine\u2014a judicial concept that applies to certain tax returns, elections, and the substantiation of certain deductions. In some cases, courts require strict compliance with the statutory or regulatory requirements, but in other situations, the courts will accept substantial compliance. While the concept of substantially complete has not been the subject of judicial review, the body of case law concerning the substantial compliance doctrine provides guidance as to how a court may interpret whether an international information return is substantially complete. This background can be applied to supplement existing informal guidance on substantial completeness or, when the IRS has not provided specific informal guidance, this background can suggest a general approach for the IRS agent to follow.<\/p>\n

Tax professionals have observed that the practice unit released today provides valuable insight into the IRS viewpoint on application of the substantial compliance doctrine, and the meaning of \u201csubstantially complete\u201d for purposes of imposing penalties related to international information return obligations and associated filing requirements. In this practice unit, the IRS discusses these terms and instructs agents how to interpret and apply them\u2014specifically with regard to Form 5471 and Form 5472 filing obligations\u2014and notes how these principles might apply to other international information return penalties. The practice unit also provides guidance regarding when a strict compliance requirement is to apply. Taxpayers with international information return obligations might find it helpful to review this practice unit.<\/p>\n

When completing Forms 5471 and 5472 it is imperative to provide all necessary information so that the form will be considered \u201csubstantially complete.\u201d\u00a0 If the form is filed but it is deemed not \u201csubstantially complete,\u201d the taxpayer may be subject to a $10,000 penalty for each form filed which is not \u201csubstantially complete.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

The IRS Large Business and International (LB&I) division last week\u00a0publicly released a \u201cpractice unit\u201d that addresses what the term “substantially complete” means with reference to international information return penalties, particularly Form 5471. The IRS recently released a new International Practice Unit (\u201cIPU\u201d) on failures to file form 5471.\u00a0 IPUs are meant to act as a […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_daextam_enable_autolinks":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[1],"tags":[92,19,20,23,24,88],"class_list":["post-1572","post","type-post","status-publish","format-standard","hentry","category-planning-for-tax-minimization","tag-92","tag-amnesty","tag-asset-protection","tag-fbar","tag-foreign-account","tag-streamlined-filing-compliance-procedures"],"_links":{"self":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/1572","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/comments?post=1572"}],"version-history":[{"count":1,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/1572\/revisions"}],"predecessor-version":[{"id":1573,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/1572\/revisions\/1573"}],"wp:attachment":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/media?parent=1572"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/categories?post=1572"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/tags?post=1572"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}