On May 3, 2024 the the D.C. Circuit Court of Appeals overturned the Tax Court's decision in Farhy v. Commissioner, 160 T.C. No. 6 (2023), which held that the IRS was without the authority to assess the Form 5471 imposed by Internal Revenue Code §6038(b).
So Where Does That Leave Us?
For one thing this Appeal's decision controls cases, in the DC circuit.
It is also persuasive authority for other circuits, as it relates to interpreting IRC §6038(b) in that it would be unlikely if not just inconsistent for Congress to allow the IRS to assert penalties under §6038(c), but not under §6038 (b) and it goes on to buttress its decision with Congressional Reenactment Doctrine by stating:
"[Our court's] conclusion is buttressed by more
than forty years of congressional acquiescence
to the IRS’s practice of
assessing section 6038(b) penalties. 'It is well established that when
Congress revisits a statute giving rise to a longstanding administrative interpretation without
pertinent change, the ‘congressional failure to revise or repeal the agency’s interpretation
is persuasive evidence that the
interpretation is the one intended by Congress.’ Since adding
subsection (b) in 1982, Congress has amended section 6038 seven times; each time, it has
left undisturbed the IRS’s practice of assessing and administratively collecting
penalties
imposed under section 6038(b)."
Whether the Congressional Reenactment Doctrine in this decision is dicta and does not need to be followed, I leave up to each of you.
Furthermore, the Tax Court in Mukhi v. Commissioner of Internal Revenue, stated that even though Farhy is on appeal in the D.C. Circuit, Mukhi's case, if appealed, would go to the Eighth Circuit, meaning any ruling from the D.C. Circuit wouldn't be binding for Mukhi, the court said.
So you can still argue that the IRS cannot assess certain information reporting penalties in other circuits and in Tax Court. Whether you be successful, still remains to be seen?
5472, 8938, & 3520 Late Filing Penalties?
Contact the Tax Lawyers at
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ReplyDeleteFull DC Circ. Won't Hear Foreign Disclosure Penalty Dispute
The D.C. Circuit declined to reconsider its ruling overturning a major U.S. Tax Court decision that had crimped the administrative collection arm of the Internal Revenue Service, letting stand a panel's restoration of the agency's power to more freely penalize undisclosed foreign corporations.
In a one-sentence per curiam order Thursday, the appellate court rejected businessman Alon Farhy's petition for the court to revisit its May 3 decision allowing the IRS to administratively collect $500,000 in penalties against him for failing to file an information return on his interests in Belizean corporations.