Limit on IRS Power to Assess Foreign Penalty Faces Wary Court

The D.C. Circuit expressed concern on Wednesday that limiting the IRS’s authority to assess penalties on taxpayers who willfully fail to file international informational returns could create inconsistencies in the tax code.

Taxpayer Alon Farhy convinced the US Tax Court that the IRS wasn’t authorized to assess a $60,000 penalty for each year he failed to file Forms 5471 to report his interest in two foreign corporations between 2003 and 2010 because they weren’t expressly authorized by Section 6038(b).

The agency appealed, arguing that its assessment power in IRC Section 6201(a) should be interpreted broadly to include those ...