A hard lesson for US taxpayer owners, settlors, or beneficiaries of foreign trusts was recently handed down in Emily S. Wilson et al. v. United States; No. 20-603. A U.S. citizen, by such relation to a foreign trust has the requirement to file IRS Form 3520 and IRS Form 3520-A annual returns. Failure to do so can result in significant IRS penalties. In this case, the arguments centered upon whether proper penalties were 5% alone or a rather shocking 35% plus the 5%. The fundamental argument was that the IRS should have only imposed a 5% penalty (not also the 35% penalty) that applies to owners of foreign trusts. Initially, the District Court agreed with the taxpayer. However, on appeal, the US Court of Appeals overturned that District Court ruling — finding that the IRS can, under the applicable IRC ยง6677 statute, apply both the 35% and the 5% penalties. It was certainly a blow to the taxpayers. The practice point is to have a competent foreign tax professional along your side each step of the way, and each year.