Layla Asali comments on the new proposed regulations on the consequences for taxpayers that fail to timely file gain recognition agreements (GRAs). The proposed regulations state that a U.S. transferor who fails to timely file an initial GRA must demonstrate only that the failure was not willful to avoid recognizing gain on the transaction. This is a change from the current guidance, under which the taxpayer must establish reasonable cause for its failure to file.

Asali said that in some contexts, the IRS has interpreted "reasonable cause" strictly. If a sophisticated taxpayer inadvertently failed a reporting obligation, it was unclear if it would be able to demonstrate that it had reasonable cause, she said, adding that the new reg package "obviates all that." Because it is easier for taxpayers to prove that they did not act willfully, the proposed regs should help taxpayers making good-faith efforts to comply with the rules, Asali said.

The proposed regulations also clarify when an initial GRA is considered timely filed and what gives rise to a failure to comply "in any material respect," stating that an initial GRA is timely filed only if all information that is required to be filed as part of the GRA is timely filed and materially complete.

Asali said that a failure to report all relevant information is more common for taxpayers than failing to file at all. In recent years, IRS officials have made clear that they are not satisfied with the level of reporting that taxpayers have done on their GRAs, so the regulations should not come as a surprise, she said. Asali added that while some companies will not find compliance under the standards in the proposed regs challenging, others may have more difficulty determining accurate fair market values and compiling the required historical basis information.