International Filing Collections and Penalties See Increase in 2022
The IRS publishes a comprehensive summary of tax collections for the prior tax period every year. This is known as the annual IRS Data Book and can be found on the IRS website. In the most recent version of this report, published in October of 2022, there have been some interesting developments, including a significant increase in gross collections for international taxpayers.
In 2022, gross collections for international taxpayers were listed at $17,654,466,000, an increase of 26.6% from the $13,941,163 collected in 2021. This increase may be attributable to an increase in IRS collections across all taxpayer groups; however, it is doubtful that the entirety of the growth is so easily explainable.
International collections growth still significantly outpaced total collections across the board, which may indicate that the IRS is increasing scrutiny on international filers. This is supported by recent reports from CPA firms of increased scrutiny and penalties for their international clients.
Without extensive expertise in international taxation, CPA firms face a higher risk for penalties. Being unfamiliar with global reporting requirements can open not only clients to penalties and interest, but also expose the CPA firm to malpractice claims. Typically, malpractice penalties faced by tax preparers are not significant, as the penalty assessed by the IRS is usually limited to interest and penalties based on their original tax liability, which would have existed regardless of mistakes by the tax preparer. However, penalties on international forms can be much more severe than what is typically faced in the tax industry.
For an example of how quickly penalties can stack up, a good case study would be to examine penalties for delinquent FBARs. An FBAR is a Report of Foreign Bank and Financial Accounts, and one FBAR must be completed for each foreign financial account so long as the aggregate value of those accounts exceeds $10,000 at any point in the tax year.
It’s common for taxpayers to be unaware of the requirement to disclose this information, and the penalties can be exceedingly steep. The minimum penalty assessed for a delinquent FBAR starts at $10,000 and can become as large as $250,000 per year. Remember, this amount does not include penalties assessed to other potentially delinquent international forms, such as Forms 5471, 8992, 8621, 3520, and 3520-A.
International tax reporting can be intimidating. Unless an accountant frequently practices in international taxation, they may not be able to adequately identify all international tax filing requirements. McGuire Sponsel can help. With a dedicated team of international tax experts, we can partner with you to accurately identify and assist in the timely filing of the appropriate international reporting forms.
Please contact our Global Business Services team if you would like more guidance on international tax reporting.
Josh Riker, is a Consultant in the firm’s Global Business Services practice and is responsible for assisting clients and adding depth in all areas of the firm’s international tax consulting services including preparing client calculations, international forms, IC-DISC tax returns, and transfer pricing documentation.