Contents
- 1 The IRS To Eliminate ‘Automatic’ Late Form 3520 Penalties
- 2 First, Why Are Form 3520 Penalties a Problem?
- 3 What Will the IRS Change About the Late Form 3520 Filing Rules?
- 4 Initial Thoughts on What Lies Ahead
- 5 Late Filing Penalties May be Reduced or Avoided
- 6 Current Year vs. Prior Year Non-Compliance
- 7 Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
- 8 Need Help Finding an Experienced Offshore Tax Attorney?
- 9 Golding & Golding: About Our International Tax Law Firm
The IRS To Eliminate ‘Automatic’ Late Form 3520 Penalties
The IRS To Eliminate ‘Automatic’ Late Form 3520 Penalties
Finally, after many years of Tax Practitioner challenges to the IRS enforcement protocols for international information reporting penalties – with a focus on Forms 3520/3520-A — the Internal Revenue Service has taken notice. The NTA blog (National Taxpayer Advocate) recently reported that the IRS intends to modify Form 3520 penalty enforcement procedures. Our international tax law specialist team has written countless articles about the challenges many Taxpayers face when seeking to challenge a Form 3520 penalty. That is because Form 3520 penalties are ‘automatically assessed’ — and depending on how the IRS responds to a Taxpayer’s late filing can impact what type of procedures the Taxpayer has available to them to fight the IRS and seek a Form 3520 penalty waiver or abatement. Let’s take a brief look at what may come next.First, Why Are Form 3520 Penalties a Problem?
The main issue with Form 3520 penalties is that the IRS automatically assesses penalties against Taxpayers who file a late Form 3520. While Form 3520 can be used for many different purposes, the main catalyst for having to file it is when a U.S. person receives a gift from a non-resident — including foreign parents and relatives. In a now all too common situation, a U.S. person may receive a large gift from a foreign relative but only learns about the reporting requirements several months (or years) after the time to file a timely Form 3520 has passed. Once the IRS receives the late Form 3520 — even if it is accompanied by a reasonable cause letter — the IRS may automatically assess penalties against the taxpayer, which puts the taxpayer under enormous pressure and stress when challenging the fine.What Will the IRS Change About the Late Form 3520 Filing Rules?
As provided on the National Taxpayer Advocate Blog (10/24, updated 10/25):-
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“By the end of the year the IRS will begin reviewing any reasonable cause statements taxpayers attach to late-filed Forms 3520 and 3520-A for the trust portion of the form before assessing any Internal Revenue Code (IRC) § 6677 penalty. This favorable change will reduce unwarranted assessments and relieve burden on taxpayers by giving them the opportunity to explain their situation before the IRS assesses a penalty. TAS has recommended these changes for years and the IRS listened. IRS Commissioner Danny Werfel announced these changes during the UCLA Extension Tax Controversy Conference.”
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