In a series of earlier blogs, I discussed some of the problematic aspects of the international information return (IIR) penalty regime. In Part 1, I advocated that, especially after the Tax Court’s decision in Farhy v. Commissioner, Congress should make Chapter 61 IIR penalties subject to deficiency procedures. In Part 2, I urged Congress to ensure that the statute of limitations in IRC § 6501(c)(8) governs these IIR penalties, while in Part 3, I reiterated my longtime recommendation that “willfulness” be proven by clear and convincing evidence. In this blog, I will address the broad scope of the IIR penalty regime.
There is a misconception that IIR penalties affect primarily bad-faith, wealthy taxpayers who are experiencing consequences of their own making. Reality, however, is much different. The IIR penalty regime disproportionately affects individuals and businesses of more moderate resources, and is by no means just a rich person’s problem. Wealthy individuals and large businesses tend to have knowledgeable and well-informed representation and as a result have fewer foot faults. Immigrants, small businesses, and low-income individuals may not be as well-informed about IIR penalties and may not have return preparers with the same technical expertise on international penalties.