U.S. Code » Title 26 » Subtitle Subtitle F— Procedure and Administration › Chapter CHAPTER 68— ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE PENALTIES › Subchapter Subchapter B— Assessable Penalties › Part PART I— GENERAL PROVISIONS

26 U.S.C. § 6677

Failure to file information with respect to certain foreign trusts

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(a) Civil penaltyIn addition to any criminal penalty provided by law, if any notice or return required to be filed by section 6048—(1) is not filed on or before the time provided in such section, or(2) does not include all the information required pursuant to such section or includes incorrect information,the person required to file such notice or return shall pay a penalty equal to the greater of $10,000 or 35 percent of the gross reportable amount. If any failure described in the preceding sentence continues for more than 90 days after the day on which the Secretary mails notice of such failure to the person required to pay such penalty, such person shall pay a penalty (in addition to the amount determined under the preceding sentence) of $10,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of such 90-day period. At such time as the gross reportable amount with respect to any failure can be determined by the Secretary, any subsequent penalty imposed under this subsection with respect to such failure shall be reduced as necessary to assure that the aggregate amount of such penalties do not exceed the gross reportable amount (and to the extent that such aggregate amount already exceeds the gross reportable amount the Secretary shall refund such excess to the taxpayer).(b) Special rules for returns under section 6048(b)In the case of a return required under section 6048(b)—(1) the United States person referred to in such section shall be liable for the penalty imposed by subsection (a), and(2) subsection (a) shall be applied by substituting “5 percent” for “35 percent”.(c) Gross reportable amountFor purposes of subsection (a), the term “gross reportable amount” means—(1) the gross value of the property involved in the event (determined as of the date of the event) in the case of a failure relating to section 6048(a),(2) the gross value of the portion of the trust’s assets at the close of the year treated as owned by the United States person in the case of a failure relating to section 6048(b)(1), and(3) the gross amount of the distributions in the case of a failure relating to section 6048(c).(d) Reasonable cause exception

No penalty shall be imposed by this section on any failure which is shown to be due to reasonable cause and not due to willful neglect. The fact that a foreign jurisdiction would impose a civil or criminal penalty on the taxpayer (or any other person) for disclosing the required information is not reasonable cause.

(e) Deficiency procedures not to apply

Subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by subsection (a).

(Added Pub. L. 87–834, § 7(g), Oct. 16, 1962, 76 Stat. 988; amended Pub. L. 91–172, title I, § 101(j)(53), Dec. 30, 1969, 83 Stat. 531; Pub. L. 93–406, title II, § 1016(a)(21), Sept. 2, 1974, 88 Stat. 931; Pub. L. 94–455, title X, § 1013(d)(2), Oct. 4, 1976, 90 Stat. 1616; Pub. L. 104–188, title I, § 1901(b), Aug. 20, 1996, 110 Stat. 1907; Pub. L. 111–147, title V, § 535(a), Mar. 18, 2010, 124 Stat. 115.)Editorial NotesAmendments

2010—Subsec. (a). Pub. L. 111–147, in concluding provisions, inserted “the greater of $10,000 or” before “35 percent” and substituted “At such time as the gross reportable amount with respect to any failure can be determined by the Secretary, any subsequent penalty imposed under this subsection with respect to such failure shall be reduced as necessary to assure that the aggregate amount of such penalties do not exceed the gross reportable amount (and to the extent that such aggregate amount already exceeds the gross reportable amount the Secretary shall refund such excess to the taxpayer).” for “In no event shall the penalty under this subsection with respect to any failure exceed the gross reportable amount.”

1996—Pub. L. 104–188, § 1901(b), substituted “information” for “information returns” in section catchline and amended text generally, substituting present provisions for former provisions which related to civil penalty in subsec. (a) and nonapplicability of deficiency procedures in subsec. (b).

1976—Subsec. (a). Pub. L. 94–455 inserted “(or, in the case of a failure with respect to section 6048(c), equal to 5 percent of the value of the corpus of the trust at the close of the taxable year)” after “transferred to a trust”.

1974—Subsec. (b). Pub. L. 93–406 substituted “and certain excise” for “chapter 42”.

1969—Subsec. (b). Pub. L. 91–172 inserted reference to chapter 42 taxes.

Statutory Notes and Related SubsidiariesEffective Date of 2010 Amendment

Pub. L. 111–147, title V, § 535(b), Mar. 18, 2010, 124 Stat. 115, provided that: “The amendments made by this section [amending this section] shall apply to notices and returns required to be filed after December 31, 2009.”

Effective Date of 1996 Amendment

Amendment by Pub. L. 104–188, to the extent related to section 6048(a) of this title, applicable to reportable events (as defined in such section) occurring after Aug. 20, 1996, to the extent related to section 6048(b) of this title, applicable to taxable years of United States persons beginning after Dec. 31, 1995, and to the extent related to section 6048(c) of this title, applicable to distributions received after Aug. 20, 1996, see section 1901(d) of Pub. L. 104–188, set out as a note under section 6048 of this title.

Effective Date of 1976 Amendment

Amendment by Pub. L. 94–455 applicable to taxable years ending after Dec. 31, 1975, but only in the case of foreign trusts created after May 21, 1974 and transfer of property to foreign trusts after May 21, 1974, see section 1013(f)(1) of Pub. L. 94–455, set out as a note under section 679 of this title.

Effective Date of 1974 Amendment

Amendment by Pub. L. 93–406 applicable, except as otherwise provided in section 1017(c) through (i) of Pub. L. 93–406, for plan years beginning after Sept. 2, 1974, but, in the case of plans in existence on Jan. 1, 1974, amendment by Pub. L. 93–406 applicable for plan years beginning after Dec. 31, 1975, see section 1017 of Pub. L. 93–406, set out as an Effective Date; Transitional Rules note under section 410 of this title.

Effective Date of 1969 Amendment

Amendment by Pub. L. 91–172 effective Jan. 1, 1970, see section 101(k)(1) of Pub. L. 91–172, set out as an Effective Date note under section 4940 of this title.

Notes of Decisions
Cited in 8 cases (3 in the last 5 years), 2005–2022 · leading case: In re Wyly, 552 B.R. 338 (Bankr. N.D. Tex. 2016).
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In re Wyly, 552 B.R. 338 (Bankr. N.D. Tex. 2016). · cites it 12× “232 Second, they assert a reasonable cause defense to the IRS’ assertions of international failure to file penalties under 26 U.S.C. § 6677 (d). 233 Third, they assert a different reasonable cause-defense to a different set of international failure to file penalties under §…”
Wilson v. United States, 6 F.4th 432 (2d Cir. 2021). · cites it 5× “” 26 U.S.C. § 6677 (a). Wilson initially paid the penalty, but less than two months later submitted a claim to the IRS seeking a full refund.”
Franklin v. United States, 49 F.4th 429 (5th Cir. 2022). “Those penalties, assessed under 26 U.S.C. § 6677 on July 18, 2016, totaled $421,766.”
Wilson v. United States (E.D.N.Y 2019). · cites it 11× “2d at 569-70 (holding that a 1 This change in plaintiffs’ argument likely stems from confusion around the fact that the 5% penalty is assessed against the “gross reportable amount,” see 26 U.S.C. § 6677 (a)(2), the definition of which changes depending upon whether the filing…”
Xélan, Inc. v. United States, 361 F. Supp. 2d 459 (D. Maryland 2005). “An IRS agent, Jay Higgins, began investigating xélan to determine whether any of the purportedly “deductible savings plans” in xélan’s repertoire violate provisions of the tax code, including 26 U.S.C. §§ 6677 , 6700, 6701, 6707, and 6708.”
United States v. Ali (D. Maryland 2020). “C § 5314 and failure to file forms under 26 U.S.C. § 6677 . ECF No. 1 ¶ 5. The IRS summons required Ms.”
Wilson v. United States (E.D.N.Y 2022). “Pursuant to 26 U.S.C. § 6677 (a), the Internal Revenue Service assessed a 35% penalty against Wilson as a beneficiary for failing to timely disclose the distribution he received from his trust.”
Xelan, Inc. v. United States, 361 F. Supp. 2d 459 (D. Maryland 2005). “An IRS agent, Jay Higgins, began investigating xélan to determine whether any of the purportedly "deductible savings plans" in xélan's repertoire violate provisions of the tax code, including 26 U.S.C. §§ 6677 , 6700, 6701, 6707, and 6708.”
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