Back in 2015 we had blogged about “The Escalation of Offshore Penalties Over the Last 20 Years.” This post explained:
“Over the past twenty years, the U.S. has significantly increased the penalties associated with failing to report certain foreign-related transactions, and it has created new filing requirements that have their own associated penalties.”
However, the 2015 post had focused on “outbound” information reporting (U.S. persons with foreign activities), such as the FBAR and Forms 3520, 3520-A, 5471, 8865, 8938.
Now the IRS and Congress seem focused on creating new reporting requirements and increasing penalties in the inbound context (i.e., foreign persons with U.S. activities).
In December 2016, the IRS published new regulations that treat foreign-owned U.S. disregarded entities (“FOUSDEs”) as domestic corporations for purposes of filing Form 5472. This new reporting requirement had some teeth, since the penalty for failing to file Form 5472 could be $10,000 or more.
When Congress enacted the 2017 TCJA, it had so many U.S. international tax changes that some advisors (including yours truly) may have missed the fact that the penalty for failing to file Form 5472 has now increased from $10,000 per failure to $25,000 per failure.
Of course, it is always important to remember that if you don’t file the required Form 5472, the statute of limitations remains open, meaning that the IRS can go back as many years as they would like to impose the penalties for failing to file.
We have updated our summary of “Monetary Penalties for Failure to File Common U.S. International Tax Forms” to reflect the new $25,000 penalty for failing to file Form 5472.