Got Foreign Investments? The Mukhi Case Could Protect You from IRS Penalties
Good news! The U.S. Tax Court made a decision that could help taxpayers like you. In the case, Mukhi v. Commissioner, the court said the IRS lacks the authority to decide on its own to give you a penalty if you fail to report ownership of a foreign company.
This decision conflicts with a previous ruling from the D.C. Circuit Court. It highlights the ongoing debate surrounding the IRS’s power to impose penalties related to international information returns.
Think you might owe the IRS for your foreign investments? Talk to Frost Law to understand your rights. Contact our team at (410) 497-5947 or schedule a consultation.
What Happened in the Mukhi Case?
The Mukhi case was about Raju Mukhi who owed almost $11 million in penalties because he didn’t file the right paperwork about his foreign company for several years. This includes Form 5471, “Information Return of U.S. Persons With Respect To Certain Foreign Corporations”. While the Tax Court upheld some penalties, it stated that the IRS could not assess penalties under §6038(b)(1) without pursuing the matter through court action.
Why Did the Court Make This Decision?
The Tax Court emphasized that the IRS’s authority is explicitly limited by the language of the tax code. It looked closely at the law and said there’s nothing that gives the IRS the power to just hand out these penalties. They said Congress deliberately chose not to give the IRS the power to assess penalties under IRC §6038(b)(1).
What Does This Mean for You?
This decision is a win for taxpayers. It means the IRS can’t easily penalize you for problems with your foreign holdings. They have to go through the court system, which gives you a chance to fight back.
Have questions about your foreign investments? Call Frost Law today at (410) 497-5947 or schedule a confidential consultation.
