Saturday, August 31, 2013

Ed Robbin's Excellent Blog on Section 6501(c)(8) Extending the Statute of Limitations for Certain International Reporting (8/31/13)

I encourage readers to study Ed Robbins most recent contribution to the Tax Crimes / Tax Procedure literature.  Edward Robbins, You Should Worry About Section 6501(c)(8) (Tax Controversy (Civil & Criminal) Report 8/31/13), here.  The author, a prominent tax controversy practitioner, here, discusses Section 6501(c)(8)'s special statute of limitations for certain international reporting, including Forms 8938, 5471, etc..  Section 6501 may be reviewed here.  Section (c)(8) is:
(8) Failure to notify Secretary of certain foreign transfers
(A) In general
In the case of any information which is required to be reported to the Secretary pursuant to an election under section 1295 (b) or under section 1298 (f), 6038, 6038A, 6038B, 6038D, 6046, 6046A, or 6048, the time for assessment of any tax imposed by this title with respect to any tax return, event, or period to which such information relates shall not expire before the date which is 3 years after the date on which the Secretary is furnished the information required to be reported under such section.
(B) Application to failures due to reasonable cause
If the failure to furnish the information referred to in subparagraph (A) is due to reasonable cause and not willful neglect, subparagraph (A) shall apply only to the item or items related to such failure.
Note that the heading of the subsection does not indicate the sweep of the text of the provision.  To summarize the sweep of the provision, where the required information is not provided with the original return, the statute of limitations for the entire return stays open indefinitely until 3 years after the information is provided.  Ed's article is excellent.  Without taking away from the article, I just quote excerpts from the opening and the ending to encourage you to read the whole article (the bold face is mine):
Most tax practitioners understand the basic assessment statute of limitations rules in the Code: three years after the return is filed, six years after the return is filed for 25% omission of income, or forever in the case of fraud and/or failure to file. Practitioners may be less familiar with the raft of additional special assessment statutes of limitation rules found in the Code, but one of these additional rules demands special attention.  That rule is section 6501(c)(8) which provides that in the case of any information on foreign activities which is required under section 6038, 6038A, 6038B, 6046, 6046A, or 6048, the time for assessment of any tax shall not expire until three years after the date on which the IRS is furnished the information required to be reported.
Until recently, section 6501(c)(8) was  often overlooked both for assessment and financial statement tax provision purposes.  As stated above, section 6501(c)(8) set forth an exception to the general rule.  In March of 2010 the Hiring Incentives to Restore Employment Act (the “HIRE Act”), amended the section 6501(c)(8) exception to the general statute of limitations and it has been made applicable to the entire income tax return – not just the tax consequences related to the information required under the relevant foreign information reporting provision.  The new section 6501(c)(8) is applicable to any tax return filed after March 18, 2010 and any other return for which the assessment period specified in section 6501 had not yet expired as of that date.  As long as a failure to comply with one of the specified foreign information reporting requirements for a tax return exists, the limitations period for that tax return remains open indefinitely.  The statute will not commence to run until the time at which the information required under the reporting provision is filed with the IRS and will not expire before three years after the filing of the required information.
* * * * 
For those felonious taxpayers wishing to keep their secret, undisclosed foreign bank accounts, their assessment statute of limitations will never expire so long as the taxpayer maintains the secrecy of the account, in part, by failing to file the required foreign information schedules on their tax returns.
For those wondering what an unlimited statute of limitations might look like, consider the current woe of the estimable Sumner Redstone, media mogul and former tax attorney, who recently attracted the attention of the IRS to for a transfer deemed to be an unreported gift in 1972.  See Bridget J. Crawford and Theresa Fortin, Sumner Redstone's 40--Year-Old-Gift, 140 Tax Notes 833 (Aug. 19, 2013), here, which introduces the subject as follows:
Most people cannot remember what they ate for lunch yesterday, let alone the details of financial transactions they completed over 40 years ago. But it is those financial details that are crucial to resolving a dispute between the IRS and Sumner Redstone, the executive chair of Viacom, CBS, and other media companies. The IRS claims that in 1972 Redstone made taxable gifts of stock worth $2.5 million to trusts for his children, and that because he never filed a gift tax return, he now owes $737,000 in back taxes, plus penalties for either fraud or negligence and failure to file, along with interest. Redstone's potential tax bill is more than $1 million and his liability turns on details of intrafamily transfers that were not well documented. 
Redstone's Wikipedia entry is here, which notes, inter alia, that  "After completing law school, Redstone worked for the United States Department of Justice Tax Division in Washington, D.C., and San Francisco, then entered private practice."

I should note that the authors' statement that the bill is more than $1 million may be an understatement because of the power of interest.  I did a quick calculation via TaxInterest and assuming a tax bill on 4/15/73 of $1, the interest is $19.46, for a total bill of $20.46, over 20 times the original tax.  Now apply that to Redstone's numbers.  But then, by repute, he can afford it.  But, all other things being equal, I would not encourage taxpayers to think that they can afford this cost of an extended statute of limitations.

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