AICPA asks for filing relief for disaster victims and guidance on grantor trust reporting

The American Institute of CPAs sent a letter to the Treasury Department’s Financial Crimes Enforcement Network and the Internal Revenue Service asking for filing relief for taxpayers affected by major disasters. Separately, it also asked the IRS and Treasury for more guidance on filing requirements for information returns on grantor trusts.

In the first letter, dated Jan. 30, the AICPA suggested FinCEN automatically match the filing deadline relief for foreign bank account reports that the IRS gives to taxpayers in disaster areas. It pointed out that taxpayers living in disaster areas can get a filing deadline postponement from the IRS, but FinCEN doesn’t automatically grant a similar deadline postponement for FBARs.

The AICPA recommended FinCEN adopt a policy of automatically granting FBAR filing postponements to coincide with the relief provided by the IRS when the IRS grants postponements under section 7508A. The institute suggested FinCEN’s relief should match the relief provided by the IRS for other filings, both in terms of the extended due dates and the geographic scope.

“Taxpayers may have a disaster-related postponement from the IRS for their tax returns and think they are in the clear,” said Peter Mills, senior manager of AICPA tax policy and advocacy, in a statement Wednesday. “They might not realize that there may not be the same postponement for their FBARs, because FBARs are not filed with the IRS. The penalties for not filing an FBAR can be severe. AICPA’s recommendations can help establish consistency and facilitate compliance with the FBAR filing deadline.”

International information return for domestic grantor trusts

Separately, the AICPA sent a different letter on Feb. 5 to the Treasury and the IRS asking for guidance about international information reporting for domestic grantor trusts. The AICPA wants them to issue a notice or revenue procedure to resolve lingering uncertainty about the obligation of domestic grantor trusts to file Form 5471, Form 8858, Form 8865 and Form 8992. The suggested guidance could either clarify that domestic grantor trusts are disregarded for the purpose of filing those forms or create certain exemptions for domestic grantor trusts from needing to file those forms.

While grantor trusts are disregarded for federal income tax purposes, domestic grantor trusts have been interpreted by the U.S. Tax Court to be U.S. persons. The AICPA contends that the Tax Court’s treatment of domestic grantor trusts as U.S. persons is inconsistent with IRS form instructions and guidance and that’s led to uncertainty about the obligation of domestic grantor trusts to file certain international information returns. 

Given the uncertainty, some taxpayers have taken the cautious step of filing international information returns with their grantor letters. But if both domestic grantor trusts and the U.S. owners of those same trusts file their own information returns, that creates redundancy in the reporting requirements instead of providing additional information that could be of use to the government. 

The AICPA also pointed out that treating domestic grantor trusts as entities for purposes of filing these information returns is also inconsistent with the global intangible low-taxed income provisions of the Tax Code. Under the GILTI rules, computations are aggregated at the U.S. shareholder level as opposed to the level of domestic pass-through entities that own shares of controlled foreign corporations.

“We are hopeful that the IRS will provide the needed guidance to clarify that domestic grantor trusts are exempt from filing these international information reporting forms,” said Eileen Sherr, director of AICPA tax policy and advocacy, in a statement Thursday. “AICPA believes this further guidance will reduce redundancy and streamline filing.”