On April 3, 2023, the U.S. Tax Court ruled in Farhy v. Commissioner that the IRS lacks statutory authority to assess Form 5471 penalties under I.R.C. § 6038(b)(1) or (2). As a result, the IRS cannot proceed with the collection of the penalties against the taxpayer. In recent years, the IRS has aggressively enforced foreign information return penalties, including the penalty for failing to file timely and complete Forms 5471. Farhy may have significant implications for taxpayers who have paid or are contesting Form 5471 penalties.