The IRS is Assessing Form 3520 Foreign Information Reporting Penalties

The IRS is aggressively sending out IRS Notice CP15 “Notice of Penalty Charge” for the late filing of Form 3520 to report the receipt of a foreign gift or foreign inheritance. The Notice states that a civil penalty has been charged and provides an explanation of why it was charged.

Background:

Under I.R.C. § 6039F the failure to furnish gift information can lead to a penalty of 5% per month up to 25% of the total gift. IRS IRM 8.11.5.6 (12-18-2015) – IRC § 6039F Notice of Large Gifts from Foreign Persons (Form 3520) provides this penalty is an “International penalty and has post-assessed, pre-payment, penalty appeal rights.”

Once the penalty is assessed, the IRS will send Notice CP 15 (or CP 215) to the taxpayer. The CP15 notice notifies the taxpayer that a penalty has been assessed and explains that, if the taxpayer wishes to appeal the assessment, he or she should submit a written prepayment, post-assessment appeal within 30 days from the date of the notice.

If the taxpayer does not take action on the CP 15 or CP 215 notice, the IRS will send the taxpayer Letter 1058, Notice of Intent to Levy and Notice of Your Right to a Hearing, or LT11 Final Notice of Intent to Levy and Notice of Your Right to a Hearing, or Letter 3172, Notice of Federal Tax Lien and Your Rights to a Hearing under IRC 6320.

Appeals:

IRS Appeals hearings are the primary method for challenging penalty determinations made regarding Form 3520.  The Office of Appeals (“Appeals”) is a unit of the IRS which is separate and independent of the IRS

The IRS Appeals Office will conduct a de novo review of the taxpayer’s liability, including his or her reasonable cause defense. A taxpayer cannot challenge the underlying liability again in Appeals if he or she has had a prior opportunity for a conference with Appeals, however, one can pay the penalty and file a refund claim for another opportunity to contest the penalty.  Under IRM 8.11.5.1 , the penalty cannot be contested after appeal denial in US Tax Court.

The Appeal’s protest should be well written with the legal goal of winning on paper. A well-written protest will help the Appeals officer effectively evaluate the taxpayer’s arguments against the penalty findings and persuade the Appeals Officer that the taxpayer’s interpretation of the law is correct. In most instances, both the IRS and the taxpayer want to avoid a lengthy and costly battle. A well-executed written protest can help this cause within the IRS Appeals process.

Over the years, our office has successfully represented numerous taxpayers with protests of Form 3520 penalties.

Patel Law Offices has consulted with hundreds of clients regarding their tax compliance issues. Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists and defends clients to legally disclose and legitimize foreign assets.