Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

TAX COURT OVERTURNS REGULATION ON LATE-FILED FOREIGN CORPORATE RETURNS

January 26, 2006

The Tax Court today overturned a treasury regulation disallowing the deductions of foreign corporations who file their returns late. The decision was the second split regular decision in two weeks.

The case involves a real estate holding company that didn't get around to filing its return for its May 31, 1993 fiscal year until July 1999. It filed its returns without prompting from the IRS. The IRS, relying on its regulation under Code Sec. 882(c), said that the late filing precluded all deductions, so the corporations would be taxable on their gross income.

The courts had ruled against the IRS on prior versions of this regulation. The IRS argued that other law changes made the prior court decisions obsolete. The Tax Court opinion reviews legislation and court decisions going back to 1928 and concludes that the IRS is still wrong on this issue. Fourteen judges sided with the taxpayers, while four judges sided with the IRS in two separate dissents.

The IRS will almost certainly appeal the case, so don't get careless in filing your foreign company U.S. returns just yet; and if you don't file until the IRS contacts you, your deductions are still toast.

Cite: Swallows Holding, LTD, 126 T.C. No. 6.

      Bookmark: del.icio.us • Digg • reddit