The IRS has begun applying automatic penalties to late-filed Form 5472’s. We knew that since 2009 the IRS has automatically assessed a $10,000 penalty for late-filed Forms 5471’s – Information Return of US Persons With Respect to Certain Foreign Corporations.
However, we have been receiving a lot of calls from businesses who have recently received penalty notices regarding late filed or non-filed Form 5472’s.Upon further investigation, we discovered that the IRS has updated its IRM 20.1.9, Penalty Handbook, International Penaltieson March 21, 2013 to now include and Automatic Assessment of this $10,000 Penalty for Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.
The Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business (Under Sections 6038A and 6038C of the Internal Revenue Code), is filed as an attachment to the U.S. income tax return by the due date of that return, including extensions. If the reporting corporation’s income tax return is not timely filed, Form 5472 nonetheless must be timely filed at the campus where the return is due. When the income tax return is ultimately filed, a copy of Form 5472 must be attached.The IRM 20.1.9, Penalty Handbook, International Penalties also provides:
Pattern Letter for Failure to File Form 5472 ( Form Letter) See Exhibit 20.1.9-8
Penalty Assertion (20.1.9.5.3) (03-21-2013) An initial penalty is asserted on Form 8278 using PRN 625 when the examiner determines that a U.S. corporation that is 25 percent foreign-owned during a taxable year has had transaction(s) with a related party and:
• Has failed to timely file Form 5472,
• Has filed a Form 5472 which is inaccurate or incomplete, or
• Has failed to maintain records of transactions with related parties.
• Penalty Computation (20.1.9.5.4) (03-21-2013) Initial Penalty—The initial penalty is $10,000 for each failure during a taxable year of a reporting corporation to:
• Timely file a separate Form 5472 with respect to each related party with which it had a reportable transaction during such taxable year,
• Maintain the required records relating to a reportable transaction, or
• In the case of records maintained outside the U.S., meet the non-U.S. record maintenance requirements.
Continuation Penalty—If any failure continues more than 90 days after the day on which the notice of such failure was mailed to the taxpayer (90-day period), additional penalties will apply. The continuation penalty is $10,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of the 90-day period. These additional penalties are also asserted on Form 8278 using PRN 701 (prior to January 2013, PRN 619 was used for this continuation penalty).
Reasonable Cause
Experienced Tax Attorneys with extensive experience with obtaining waivers of penalty based upon “Reasonable Cause” and have been able to get automatic assessments of the $10,000 Penalty for Form 5471’s, waived after their assessment or at Appeals!
Has your Company been assessed an Automatic $10,000 Penalty for Form 5472?
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