Obtaining Relief From Form 1120-F Deficiency Penalties: Filing Protective Returns and Seeking Reasonable Cause Waiver

Preserving Expense Deductions, Claiming Treaty Positions and Leveraging Section 1.882-4 Provisions

Recording of a 110-minute CPE webinar with Q&A


Conducted on Tuesday, February 14, 2017

Recorded event now available

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Program Materials

This webinar will provide corporate tax professionals with a deep and practical guide to navigate the IRS processes for obtaining relief from penalties and deduction disallowances due to failure to accurately file Form 1120-F Income Tax Return of a Foreign Corporation. The panel will discuss the punitive rules on disallowance of deductions specific to Form 1120-F, offer strategies for filing protective returns, claiming treaty benefits, and seeking relief under Treas. Reg. 1.882-4(a)(3)(ii).

Description

Among the stricter penalty regimes of the U.S. tax code is the consequence for failure of a foreign corporation to file a Form 1120-F Income Tax Return of a Foreign Corporation. The federal tax code requires foreign entities with an effective presence in the U.S. to file this return and report income and loss “effectively connected” with the U.S.

A foreign corporation subject to Form 1120-F filing obligations that fails to file the return within 18 months of its original due date risks having all its eligible deductions disallowed. This results in the corporation paying tax on its gross income and also usually leads to substantial underpayment penalties—tax cost for noncompliance is very high.

Foreign corporations that are uncertain as to U.S. filing obligations may file a protective return Form 1120-F to avoid losing deductions after the 18-month window. Protective returns generally include claiming a treaty-based position, which is reported on Form 8833. In addition to protective returns, Treas. Reg. 1.882-4(a)(3)(ii) provides a process for foreign corporations to seek relief from penalties for delinquent filings by making a reasonable cause request.

The regulations spell out the specific criteria under which the Service may consider a request for relief. Tax advisers need to be well acquainted with the Form 1120-F rules to avoid costly tax consequences.

Listen as our experienced panel provides a practical guide to navigating the process of obtaining relief from Form 1120-F noncompliance.

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Outline

  1. Filing Protective Form 1120-F
    1. Circumstances indicating a Protective Return
    2. Claiming treaty-based return position on Form 8833 with a Protective Return
    3. Permanent Establishment tests under which the IRS may assert filing requirements
  2. Penalties and Consequences of failure to file a required Form 1120-F
    1. 18-month deduction disallowance window
    2. Substantial understatement penalties
    3. Information issues involving Foreign partnerships and completing Schedule P
  3. Claiming relief under Treas. Reg. 1.882-4(a)(3)(ii)
  4. Standards for IRS review in determining whether relief will be granted under 1.882-4

Benefits

The panel will discuss these and other important topics:

  • Identifying the consequences of failing to file a Form 1120-F for companies that have tax liabilities or filing obligations
  • Determining whether to file a Form 1120-F protective return
  • Claiming treaty benefits on a Form 1120-F after filing a protective return
  • Seeking relief under Treas. Reg. 1.882-4(a)(3)(ii)
  • Standards applied by the IRS in determining whether to grant relief from late filing of Form 1120-F

Faculty

Barsky, Stanley
Stanley Barsky

Partner
Fox Rothschild

Mr. Barsky's practice involves a broad range of transactional and general advisory tax law matters, with a focus on...  |  Read More

Jennifer E. Benda
Jennifer E. Benda

Partner
Fox Rothschild

Ms. Benda is an experienced tax attorney who handles tax controversy and income tax planning and compliance matters....  |  Read More

Dougherty, Alison
Alison N. Dougherty, J.D., LL.M.

Director
Aronson

Ms. Dougherty has extensive experience assisting clients with U.S. tax reporting and compliance for offshore assets and...  |  Read More

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