CP15 Notice: The CP15 Notice is an IRS Penalty Charge that requires a timely response. In a very common scenario, a U.S. Person may have recently received an IRS CP15 Notice for Form 3520 unreported foreign gifts.
While the CP15 Notice may be issued for may different reasons, the failure or untimely reporting of a large gift from a foreign person is one of the most common reasons for receiving this IRS letter.
Generally, when a person files the Form 3520 Late, but does not submit a proper reasonable cause statement — they can get hit with the CP 15 Notice.
Unlike other types of penalties, the CP 15 Notice has very specific timelines for a response appeal or “protest” to be filed.
CP15 Notice & the IRS
The IRS CP 15 Notice is one of several types of penalty letters the Internal Revenue Service may issue.
Not all IRS penalties are created equal. Some penalties are not so bad, while others can be devastating (such as the willful FBAR Penalty).
Unfortunately, the CP15 notice of penalty charge is bad news.
Sample Language from a CP15 Notice
“We charged you a penalty under IRC Section 6039F for failure to file the information report required of a U.S. person who receives a foreign gift exceeding $10,000 plus the amount derived from multiplying $10,000 by the cost-of-living adjustment for the taxable year.
The penalty is 5 percent of the amount of the foreign gift for each month the failure continues, not to exceed 25%
If you do not wish to appeal this penalty, there is nothing you need to do at this time.
You may later dispute the penalty by paying the penalty and then filing a claim.
If you wish to appeal this penalty, send the IRS at the address shown on page 1 of this notice a written request to appeal within 30 days from the date of this notice. Your request should include any explanation and documents that will support your position. Your explanation should reflect all facts that you contend are reasonable cause for not asserting this penalty.”
For tax forms, instructions and information visit www.irs.gov. Access to this site will not provide you with any taxpayer account information.
*Pursuant to the IRS Cost of Living Standard, the $10,000 was increased to $100,000.
What does IRC 6039F Provide?
(a) In general
If the value of the aggregate foreign gifts received by a United States person (other than an organization described in section 501(c) and exempt from tax under section 501(a)) during any taxable year exceeds $10,000, such United States person shall furnish (at such time and in such manner as the Secretary shall prescribe) such information as the Secretary may prescribe regarding each foreign gift received during such year.
(b) Foreign gift
For purposes of this section, the term “foreign gift” means any amount received from a person other than a United States person which the recipient treats as a gift or bequest. Such term shall not include any qualified transfer (within the meaning of section 2503(e)(2)) or any distribution properly disclosed in a return under section 6048(c).
(c) Penalty for failure to file information
(1) In general
If a United States person fails to furnish the information required by subsection
(a) with respect to any foreign gift within the time prescribed therefor (including extensions) —
(A) the tax consequences of the receipt of such gift shall be determined by the Secretary, and
(B) such United States person shall pay (upon notice and demand by the Secretary and in the same manner as tax) an amount equal to 5 percent of the amount of such foreign gift for each month for which the failure continues (not to exceed 25 percent of such amount in the aggregate).
(2) Reasonable cause exception
Paragraph (1) shall not apply to any failure to report a foreign gift if the United States person shows that the failure is due to reasonable cause and not due to willful neglect.
(d) Cost-of-living adjustment
In the case of any taxable year beginning after December 31, 1996, the $10,000 amount under subsection (a) shall be increased by an amount equal to the product of such amount and the cost-of-living adjustment for such taxable year under section 1(f)(3), except that subparagraph (A)(ii) thereof shall be applied by substituting “1995” for “2016”.
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
IRM 8.11.5 (Internal Revenue Manual)
The IRM is the Internal Revenue Manual.
As provided by the Internal Revenue Manual on issues involving the “Large” foreign gift penalties:
- See IRM 22.214.171.124, IRC 6039F(c) – Large Gifts From Foreign Persons, for additional information.
- Appeal Rights – IRC 6039F(c) is an International penalty and has post-assessed, pre-payment, penalty appeal rights. See IRM 126.96.36.199.1(5), Appeal Rights.
- U.S. persons who receive gifts or bequests during the taxable year from a foreign individual, foreign estate, foreign corporation, or foreign partnership, that in the aggregate exceed the current threshold amounts, must file Form 3520, Annual Return to Report Transactions With Foreign Trust and Receipt of Certain Foreign Gifts, and fill out Part IV.
- A Form 3520 is filed once a year for all reportable gifts within the year with respect to each U.S. person. It is generally due on the due date of the filer’s income tax return, including extension, and is filed with the Ogden Campus.
- Upon receipt of the case, the ATE must follow the procedures outlined in IRM 188.8.131.52.4, Assignment of PENAP Cases, and IRM 184.108.40.206.5, New Receipt Procedures for Appeals Technical Employees.
- Verify the penalty was assessed on IDRS on MFT 13 for BMF and MFT 55 for IMF, Transaction Code (TC) 240, with PRN 668.
For case files coming from Examination, match the penalty assessed to the Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.
- Reasonable Cause: IRC 6039F(c)(2) provides that no penalty shall apply to any failure if the U.S. person shows such failure is due to reasonable cause and not willful neglect. See IRM 220.127.116.11.2, Reasonable Cause, for reasonable cause provisions.
What Can You Do about a CP15 Notice?
The most important thing you can do, is to act timely in responding to the letter.
Generally, you will receive 30-days to respond. It may be a bit of an uphill battle to try to get this type of penalty removed, but not impossible.
Out of Compliance BEFORE a Penalty was Issued?
If you are out of compliance before an IRS penalty was issued, you may consider entering one of the approved IRS Tax Amnesty programs to try to avoid a penalty being issued.
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Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
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