As part of annual tax return compliance, the IRS requires additional information returns to be completed related to investments and intercompany transactions with foreign subsidiaries and trusts. These returns often carry large penalties for failure to file, resulting in penalties from $10,000 to $60,000 annually for each required filer who misses these returns.
These information returns include:
- Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations
- 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 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
Failure to file these forms with the annual tax return includes additional risk, as the statute of limitations will not begin to run until these returns are completed and filed with the IRS.
Penalty Relief for 2019 and 2020
To aid the IRS and taxpayers with COVID-related delays in tax return reporting, the IRS provided relief through Notice 2022-36 on August 24, 2022. This notice relieves the penalties related to Forms 5471, 5472 and 3520 for the tax years 2019 and 2020, as well as other domestic returns.
Relief is available for Form 1065, 1040, 1041 and 1120-series filers, provided that these returns are filed by September 30, 2022. For tax return filers who have already filed these returns delinquently, the IRS will automatically process the refund of penalties and interest that may have already been paid related to these returns.
This provides an opportunity for taxpayers who may also be close to completing their tax returns to be able to take advantage of this penalty relief by completing and filing these returns by the September 30, 2022 deadline.
Delinquent International Information Return Submission Procedures
For taxpayers who are not able to meet the September 30 filing deadline under Notice 2022-36, the IRS continues to offer penalty relief through the delinquent international information return submission procedure. Filers not currently under exam can take advantage of this procedure to file information returns and avoid penalties, provided there is a reasonable cause for the delinquency.
This procedure is applicable for Forms 5471 and 5472, as well as Form 8858, Information Return of U.S. Persons with Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs). This procedure would not apply to Form 3520 related to foreign trusts.
If you need assistance with completing delinquent international information returns or taking advantage of these relief programs, please reach out to your RKL tax advisor or the International Tax team.