The tax law arena experienced a substantial upheaval with the Farhy v Commissioner case (Farhy v. Comm’r of Internal Revenue, No. 10647-21L (U.S.T.C. Apr. 3, 2023)), deemed one of the most impactful tax procedure opinions of the previous year. The Tax Court ruled that the IRS lacked authority to impose penalties under Section 6038(b) for failing to file an information return concerning foreign corporations. The government filed a notice of appeal this week.
The case is set to continue in the DC Circuit Court of Appeals, given the taxpayer’s residence in Israel at the time of the petition’s filing.
Expert Insights on Farhy v. Commissioner, the IRS, and Section 6038
Andrew Velarde, a tax law authority, has meticulously followed and dissected the Farhy v. Commissioner case in Tax Notes (NB: there’s a pay wall). Velarde’s expert perspective provides a deep dive into the complexities and potential implications of the case. He showcases the views of many who believe the IRS overstepped its boundaries by imposing these penalties without clear statutory authority.
Many well-respected tax scholars believed that the IRS’s extensive authority to assess under Section 6201(a) permitted the IRS to levy 6038(b) penalties and other information-based penalties outside of Chapter 68. For them, it seemed incongruous that Congress would intend a separate process involving DOJ litigation to penalize taxpayers who fail to disclose interests in foreign corporations but not other foreign entities.
The Far-Reaching Impact of the Farhy Decision
The outcome of Farhy has sweeping implications. As noted by Velarde, the IRS has hinted that it will concede Section 6038(b) penalties in Collection Due Process (CDP) cases. Taxpayers who have paid this penalty and others similar to it should strongly consider filing protective refund claims.
Don’t Miss Out on Your Potential Refund: Contact The Tax Defenders Today!
If you’re one of the taxpayers who’ve paid penalties under Section 6038(b) or similar penalties, it’s time to act. The Farhy v Commissioner case suggests you may be eligible to file a protective refund claim. As this process can be complex, you should consult with an experienced tax attorney to guide you through the process and protect your rights.
Here at The Tax Defenders, we have over 20 years of experience assisting individuals with IRS-related issues. We are ready and able to help you navigate this changing landscape of tax law. Call us today at 312-345-5440 for a free attorney consultation. Your peace of mind and financial well-being are our priorities. Don’t navigate this alone – call The Tax Defenders today.