A recently released IRS program manager technical assistance (PMTA) memorandum (PMTA 2014-018) is a reminder of the importance of timely and complete filing of international information returns.
Section 6501(c) includes exceptions to the typical three-year statute of limitations for assessment of tax. Under Section 6501(c)(8), the three-year statute doesn't begin to run until certain information relating to foreign transfers that is required to be reported to the IRS is actually reported. That code section is broadly written to encompass "any tax imposed by [the Internal Revenue Code]" related to "any tax return, event, or period to which [the] information relates."
In essence, if a taxpayer fails to file the required information returns enumerated under Section 6501(c)(8) in a timely way, that taxpayer's entire income tax return will be open to assessment until the required information return is filed. Late-filing penalties related to delinquent information returns may also apply. There are also special rules relating to reasonable cause that may limit the items that remain open in the return.
Under the facts of the PMTA, the taxpayer, an individual, owned interests in certain specified foreign financial assets, which gave rise to reporting under Section 6038D through the filing of Form 8938, which is to be filed in a timely manner with a taxpayer's income tax return.
The taxpayer died during the tax year, and the taxpayer's executor was required to file the returns —Forms 1040, 1041 and 706 — on behalf of the deceased taxpayer and the estate. While the executor filed Forms 1040, 1041 and 706 in a timely manner, he didn't furnish the information required under Section 6038D with the Form 1040.
The IRS in the memo concluded that Section 6501(c)(8) is generally very broad and that an executor's failure to report a foreign financial asset, as is required under Section 6038D, "or any of the other listed provisions" of Section 6501(c)(8), "will hold open the period of limitations on assessment of any tax required to be shown on the individual's Form 1040 or the estate's Form 1041 or Form 706, to the extent that the unfurnished information 'relates' to such return."
The question of whether the information "relates" to a return is a factual one, according to the IRS. Under the facts of the PMTA, each of Forms 1040, 1041 and 706 omitted the foreign financial asset required to be reported under Section 6038D. The information would have, at the very least, identified "a likely source of income, during the relevant time period, and assets held at or near the time of death." Accordingly, that information "relate[d]" to each of the three returns, and the extended statute of limitation under Section 6501(c)(8) would apply to the returns.
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