A hard lesson for US taxpayer owners, settlors, or beneficiaries of foreign trusts was recently handed down in Emily S. Wilson et al. v. United States; No. 20-603. A U.S. citizen, by such relation to a foreign trust has the requirement to file IRS Form 3520 and IRS Form 3520-A annual returns. Failure to do so can result in significant IRS penalties. In this case, the arguments centered upon whether proper penalties were 5% alone or a rather shocking 35% plus the 5%. The fundamental argument was that the IRS should have only imposed a 5% penalty (not also the 35% penalty) that applies to owners of foreign trusts. Initially, the District Court agreed with the taxpayer. However, on appeal, the US Court of Appeals overturned that District Court ruling — finding that the IRS can, under the applicable IRC §6677 statute, apply both the 35% and the 5% penalties. It was certainly a blow to the taxpayers. The practice point is to have a competent foreign tax professional along your side each step of the way, and each year.

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Jason Morton is a Partner in a small boutique tax law firm, Webb & Morton PLLC, with offices in both North Carolina and Virginia. He maintains the law firm’s very active

Blog, as well as maintaining a Vlog on YouTube. Jason…

Jason Morton is a Partner in a small boutique tax law firm, Webb & Morton PLLC, with offices in both North Carolina and Virginia. He maintains the law firm’s very active

Blog, as well as maintaining a Vlog on YouTube. Jason has published several featured articles with TaxNotes, the NC Bar Association Tax Section, Autism Parenting Magazine, local newspapers and most recently, working with Cointelegraph and Bloomberg Tax. Jason is also an Officer in the Army National Guard, most recently serving an active duty tour from 2016 to 2018. Most importantly, above all else, Jason is proud Autism Dad.