Whitehouse and Cassidy Bill to Protect Well-Meaning Taxpayers from Harsh Penalties Approved by Senate Finance Committee

Fairness in Foreign Filing Act would benefit ordinary taxpayers while keeping pressure on wealthy tax cheats

Washington, D.C. - The Fairness in Foreign Filing Act, authored by U.S. Senators Sheldon Whitehouse (D-RI) and Bill Cassidy (R-LA), was approved by the Senate Finance Committee today as part of the Taxpayer Assistance and Service Act. The legislation would clarify the Internal Revenue Service's authority to assess and collect penalties and spare honest taxpayers from steep penalties for unintentionally failing to file certain tax forms.

"Honest American taxpayers shouldn't have to worry about getting punished with huge fines for failing to file forms they didn't know they had to file," said Whitehouse. "Our bipartisan legislation would create a fairer and simpler process for those that miss filing international reporting forms while ensuring wealthy tax evaders aren't let off the hook."

Taxpayers in the U.S. who receive money from abroad, have foreign financial interests, or engage in certain foreign transactions are required to file international reporting forms with the IRS. Penalties for failure to file or reporting inaccurate information are severe. Unfortunately, these large penalties are hitting unsuspecting taxpayers-often with lower incomes-who were unaware of their reporting obligations. The IRS has been systematically assessing these penalties and causing greater hardship for taxpayers, only to ultimately abate 74 percent of them upon further review. Another challenge for taxpayers is that certain international reporting forms are due before tax filing, causing inadvertent late filings.

All the while, conflicting court decisions have called into question the IRS's ability to assess certain penalties, letting wealthy tax cheats off the hook while causing confusion and disparate treatment for taxpayers based on where they live. Farhy v. Commissioner found that the IRS lacks the authority to assess penalties for failing to file a form reporting ownership in certain foreign corporations. Two Circuit Courts have ruled that the IRS can, in fact,assess such penalties, but those rulings only apply in their respective jurisdictions.

The Fairness in Foreign Filing Act would ensure well-meaning taxpayers avoid unnecessary penalties by clarifying their reporting obligations and simplifying the reporting process. Specifically, the bill would create a standardized pre-assessment process for penalties for failing to file certain forms related to foreign businesses, trusts, and gifts to give taxpayers a clear path to get administrative review before assessment. The bill would also establish a default rule clarifying the assessability of penalties or additions to tax in the Code and align filing dates of international reporting forms with tax filing deadlines to prevent taxpayers from inadvertently filing them late.

Full text of the bill is available here.