Question: Has anyone had any experience with late-filed Form 5471 (or
some of the other more obscure information forms) using a Form 1040X
as a vehicle? Is the Service assessing penalties for the late filing
of these things or only for the non-filing?

REPLY: According to the instructions to Form 5471 (Revised Feb., 2007),

"A $10,000 penalty is imposed for each annual accounting period of
each foreign corporaton for failure to file the required information
within the time prescribed."

In the past six years I've filed a number of late information returns
for individuals (who were majority shareholders of foreign
corporations) with Form 5471 and 926. In each case, I've prepared a
letter over the clients signature explaining the reason for the
non-filing and have requested a waiver of the potential penalty for
late filing based on reasonable cause. In each letter, I have
indicated that the IRS has not contacted the client in any way and
that the filing is an entirely voluntary disclosure. In most of those
cases, the foreign corporation incurred a loss in every year and was
liquidated after all of the required returns were filed. In some
cases, the clients local tax preparer was aware of the client's
ownership of a foreign corporation but was not aware of the filing
requirements. However, in all cases, the client did not discover the
filing obligation until he stumbled on the information on the Internet.

I prepared the Form 1040x in only a few cases because it's a lot more
efficient for the client's local tax preparer to do that. In fact, I'm
no longer taking cases where it would be necessary for me to replicate
the Form 1040 on my computer system in order to prepare the Form 1040X.

So far, none of the past clients have informed me that the IRS has
insisted on any penalties, but for returns filed in the past two
years, they still have time to review the filings. But unofficially,
IRS representatives at the latest AICPA tax conference and committee
meetings indicated that they were going to be less lenient on
penalties for late filed returns. Whether they are just trying to
scare us into compliance or will actually begin to deny waiver
requests will remain to be seen. I now inform any new client with past
due returns that the waiver of any penalties is totally at the
discretion of the IRS.

Vern

P.S. We are getting close to a full room at the CFC Tax Boot Camp in
Las Vegas on Friday, Dec. 7th (Just 3 weeks). Seating is limited
unless I can manage to get a larger room, which I won't do unless
enough people contact me in advance so that there is time to change
the meeting room. For details see www.offshorepress.com/cfcworkshop.htm

IRS Regulations require that I include the following statement with
any written explanation of the tax law. The comments in this
memorandum are not intended to constitute an opinion regarding any
specific tax issues because additional tax issues may exist that could
affect the tax treatment of the tax issues addressed in this memo.
This memorandum does not consider or reach a conclusion with respect
to those additional issues and was not written and cannot be used for
the purpose of avoiding penalties under code section 6662(d). For
further details see
http://www.offshorepress.com/vkjcpa/disclosurerules.htm