The implications of this ruling are significant for globally mobile employees, as the penalty language at issue in Farhy is used in other international information reporting provisions (such as the penalty provisions addressing the failure to timely file Form 8938, Statement of Specified Foreign Financial Assets, and Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts).
The reversal means the IRS will continue to automatically assess penalties for failure to timely report foreign holdings, assets, and trusts before consideration of an assignee’s request for relief based on reasonable cause. Resolving these penalties with the IRS can be costly and time-consuming, even when the compliance failure is due to an assignee being inexperienced with U.S. reporting requirements.