Relief For Expats Owning Foreign Corporations In U.S. Tax Court

Relief For Expats Owning Foreign Corporations In U.S. Tax Court

For US expats who own businesses in foreign countries and need to file Form 5471, the recent Farhy v. Commissioner decision by the US Tax Court may be of interest. On April 3, 2023, the U.S. Tax Court made a decision in Farhy v. Commissioner regarding penalties for failure to file Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. This decision has implications for U.S. expats who own businesses in foreign countries and need to file this complicated form.

In the case, Alon Farhy owned two Belize corporations from 2003 to 2010, but did not file Forms 5471 for either corporation, despite being required to do so. In November 2018, the IRS assessed penalties of $10,000 per failure to file, per year, and a continuation penalty of $50,000 for each year. However, the U.S. Tax Court ruled that the Internal Revenue Code does not authorize the IRS to assess these penalties, and therefore the IRS cannot collect them via levy.

While this ruling may lead some taxpayers to consider filing refund claims for penalties previously assessed and paid under Section 6038(b), it is unclear whether this case creates a right to a refund. Additionally, it is important to note that the case does not relieve the obligation to file Form 5471 or any other required form. Failure to file certain international information returns, such as Forms 5471 and 5472, may impact the limitations period on a taxpayer’s return, and this case does not change that rule. U.S. expats who own businesses in foreign countries should be aware of the requirements for filing Form 5471 and consult with a tax professional to ensure compliance with all applicable tax laws.

Need help with US expat taxes? Our expert tax professionals provide free email advice. Contact us for answers to your questions about double taxation and reducing your tax liability. We’re here to help you navigate international tax laws. Have a question? Contact Olivier Wagner, 1040 Abroad.

Olivier Wagner

Certified Public Accountant, U.S. immigrant, expat, and perpetual traveler Olivier Wagner preaches the philosophy of being a worldly American. He uses his expertise to show you how to use 100% legal strategies (beyond traditionally maligned “tax havens”) to keep your income and assets safe from the IRS. Before obtaining my U.S. citizenship and traveling all over the world, he was born and raised in France. His experience learning the intricacies of the U.S. immigration process combined with his desire to travel freely lead me to specialize in taxes for Americans living and working abroad. He helps Americans Abroad file their taxes and devise strategies that make sense for their lifestyle. These strategies encompass all aspects of registering an offshore business, opening a bank account abroad, and planning out new residencies and citizenships. He is operating the accounting firm 1040 Abroad. 1040 Abroad exists to help you make sense of an incredibly large world of possibilities. Find out more by visiting

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2 comments on “Relief For Expats Owning Foreign Corporations In U.S. Tax Court

    • Yes, I would think so.
      Now is indeed a good time for those with unfiled such forms to get into compliance, no questions asked.
      It’s as if we just got an expanded IRS Notice 2022-36. But just like IRS Notice 2022-36, it comes with an expiration date, even though that expiration date is not known yet.

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