Page 1 - Time will not Make this Problem Disappear: The Open-Ended Statute of Limitations for Taxpayers With Delinquent Foreign Information Returns

PRACTICE POINTS
Time Will Not Make This Problem Disappear:
The Open-Ended Statute of Limitations for Taxpayers With Delinquent Foreign Information Returns
By Megan L. Brackney, Kostelanetz & Fink LLP, New York, NY
Although section 6501(c)(8) has been in the Code for several years, many tax practitioners remain unaware of this exception to the general three-year statute of limitations for assessment of tax for delinquent foreign information returns. This exception can signi cantly in uence a taxpayer’s decision as to whether, and how, to correct past non-compliance. This article rst discusses the exception, and then describes the alternative methods for late ling of foreign information returns.
A. The Application of the Exception
The foreign information returns referenced include Form 8938, Statement of Speci ed Foreign Financial Assets, Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, and Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, among others. Although section 6501(c)(8) does not apply to the failure to le a Report
of a Foreign Bank or Financial Account (FBAR), many taxpayers who have failed to le FBARs also have failed to le Form 8938 reporting their foreign accounts as speci ed foreign nancial assets, and thus they still need to be concerned about section 6501(c)(8). For those uncertain about their responsibilities, the Service provides a helpful comparison of the ling thresholds for FBARs and Forms 8938.
Under section 6501(a), the Service generally has three years from the date a tax return is led to assess additional tax, but there are numerous exceptions. Since the March 18, 2010 effective date of revised section 6501(c)(8),1 the time for assessment of tax does not expire until three years after the date that all required foreign information returns have been led. The application of section 6501(c)(8) depends on the tax year at issue. For tax returns for which the general three-year statute of limitations for assessment had not yet expired before March 18, 2010 and for all returns led after March 18, 2010, the statute
of limitations for assessment is open for all items on the return until the delinquent foreign information return is led, unless the failure to le the foreign information return was due to reasonable cause and not willful neglect.2 If the taxpayer establishes reasonable cause, the limitations period is extended only for the items related to the failure to provide the required information. For tax years for which the statute of
1 HIRE Act, § 512, P. L. 111-147, 124 Stat. 71 (Mar. 18, 2010); Education Jobs Fund; State Fiscal Relief Act, §218, P.L. 111- 226, 124 Stat. 2389 (Aug. 10, 2010).
2 See Chief Counsel Advisory 201147030 (Aug. 22, 2011).
Published in ABA Tax Times, February 2016. © 2016 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied 1 or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. ISSN 2381-5868.
Vol. 35 No. 2 | February 2016