Foreign Information Returns: The Cost of Not Filing
Do you file an international informational return? Or, more to the point, should you be filing an international information return?
Generally, the statute of limitations for the IRS to assess all income taxes is within three years after a taxpayer's original income tax return is filed. However, for international taxpayers, the 2010 Hire Act changed the rules by extending the statute of limitations indefinitely on an international taxpayer's income tax return where the taxpayer fails to file one of the following international information returns:
- Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund
- Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations
- Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships
- Form 8858, Information Return of U.S. Persons With Respect To Foreign Disregarded Entities
- Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business
- Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation
- Form 8938, Statement of Specified Foreign Financial Assets
- Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner
This is a significant event. Why? Because even though an international taxpayer has otherwise filed their U.S. tax return in a timely matter, the non-filing, or incomplete filing, of their international information returns keeps the tax assessment period open indefinitely, not solely on the delinquent international information return, but on the taxpayer's income tax return.
Potential Relief
There is potential for relief, if the international taxpayer can establish reasonable cause for the failure to file a missing international information return. In such cases, the limitations period is left open only for the item, or items, related to the failure to disclose when the required international information return is not filed. However, if the taxpayer does not have reasonable cause for the failure to provide the information required by these forms, the statute of limitations period remains open to all issues with respect to the taxpayer's income tax return.
We recommend international taxpayers review their international information return tax filing requirements to ensure that all required filings are scheduled for completion, or have been completed, for the current and prior years. Eide Baily can provide assistance in determining the relevant filing requirements and can also help taxpayers to complete any prior missed filings.
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Eide Bailly's National Tax Office serves as a resource for clients to help analyze complex tax issues related to business decisions. Our professionals are committed to helping clients stay informed about tax news, developments and trends through various specialty areas, including cost segregation studies, wealth transfer, state and local taxation, international tax, IRS controversy and procedures, R&D tax incentives, tax-exempt organizations, tax legislation, accounting methods and pass-through entities.
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