IRS Can’t Assess Penalties in Foreign-Owned Corporation Dispute

The IRS can’t assess penalties on a taxpayer with unreported business interests under tax code Section 6038 because no provision in the code authorizes it, the US Tax Court said.

Alon Farhy fully owned foreign corporations Katumba Capital and Morningstar Ventures from 2003 through 2010, and during those years failed to report the ownership interests in those corporations under Section 6038(b). The IRS assessed penalties totaling $50,000 for the violations, and issued a levy notice in 2019, which they sustained in 2021. Farhy petitioned the Tax Court, disputing the IRS’s authority to assess Section 6038 penalties.

The Tax Court ...