Academic journal article Journal of Accountancy

6038A Guidance Issued

Academic journal article Journal of Accountancy

6038A Guidance Issued

Article excerpt

The IRS has guidance on procedures it will follow before imposing the noncompliance penalty under Internal Revenue Code section 6038A and said the penalty will be used sparingly.

The tax code requires a foreign related party to authorize a "reporting corporation" (generally a U.S. corporation 25% owned by a foreign shareholder or a foreign corporation with a U.S. branch) to act as its agent to accept an IRS summons for information on transactions covered by section 6038A. A reporting corporation also must produce, in response to a summons, records and testimony concerning transactions between it and certain foreign related parties. Failing to comply with either requirement can result in the noncompliance penalty.

In addition to other penalties, the IRS can deny, in whole or in part, a reporting corporation's expenses and acquisition costs arising out of transactions with certain foreign related parties.

However, in a recent amendment to the Internal Revenue Manual (IRM), the IRS said it intends the noncompliance penalty to be used sparingly. The IRM now says the penalty generally will not be applied for failure to sesignate an agent if the foreign related party promptly and fully complies with all section 6038A information requests. …

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