Category: Tax Returns, Examinations & IRS Procedure Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Revenue Ruling 65-80 provides that Section 331 treatment will not be denied to the shareholder of a liquidating corporation as a result of failure by the liquidating corporation to file Form 966. The ruling goes on to provide as follows. However, under certain circumstances, failure to furnish information required by Section 1.6043-1 of the regulations may subject the taxpayer to the provisions of Section 7203 of the Code, pertaining to criminal tax penalties for willful failure to supply information required by the regulations. Section 7203 provides as follows. Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution. In the case of any person with respect to whom there is a failure to pay any estimated tax, this section shall not apply to such person with respect to such failure if there is no addition to tax under section 6654 or 6655 with respect to such failure. [Emphasis supplied.] Note that the statute requires willfulness. An inadvertent failure to file would not trigger this penalty. I can find no indication that the "certain circumstances" referred to in Rev. Rul. 65- 80 are spelled out anywhere. While it may be true in theory that criminal prosecution could result from failure to file Form 966, it seems to me an unlikely result. I suspectand this is only conjecture on my partthat criminal prosecution for failure to file Form 966 would result only if the taxpayer were also being prosecuted for tax evasion or some other tax crime. I suspectand again this is only conjectureif both the liquidating corporation and the shareholder report the tax consequences of the liquidation and pay the tax related thereto, the government would have little or no motivation for asserting a criminal penalty for failure to file Form 966. Clearly, the more the government perceives there is some nefarious purpose associated with failure to file, the more likely they are to assert criminal penalties. |
