Form 3520 Late Filed Penalty
Form 3520 Penalty Late Filed Penalty: When a U.S. person receives a foreign gift, inheritance or trust distribution from a foreign person, they may be subject to Form 3520 reporting. If they do not file the form timely, they may be subject to a Form 3520 late filed penalty.
In general, the Form 3520 is due when a Taxpayer’s tax return is due. The late filed form 3520 penalty can be severe.
The average amount of the offshore penalty that the Internal Revenue Service has been issuing on Form 3520 is upwards of 25% value of the gift.
Depending on the specific taxpayer situation, that can be a very significant penalty.
To avoid or abate these penalties, the IRS has developed abatement procedures, including Reasonable Cause, Delinquency Procedures, and offshore voluntary disclosure such as new OVDP or Streamlined Filing.
IRS Penalties for Unreported Foreign Gifts
In most unreported gifts situations, a U.S. person receives a money gift or an inheritance from a foreign parent or relative (or a trust distribution), and had no idea they were supposed to report the information to the IRS.
If a person does not file form 3520, there can be some significant penalties associated with the non-filing of the form in accordance with IRC 6677.
In lieu of an audit, the IRS may issue a CP15 Notice with an automatic penalty assessment.
IRC Section 6677
“A penalty applies if Form 3520 is not timely filed or if the information is incomplete or incorrect (see below for an exception if there is reasonable cause).
Generally, the initial penalty is equal to the greater of $10,000 or the following (as applicable): 35% of the gross value of any property transferred to a foreign trust for failure by a U.S. transferor to report the creation of or transfer to a foreign trust. 35% of the gross value of the distributions received from a foreign trust for failure by a U.S. person to report receipt of the distribution.
5% of the gross value of the portion of the foreign trust’s assets treated as owned by a U.S. person under the grantor trust rules (sections 671 through 679) for failure by the U.S. person to report the U.S. owner information.
Such U.S. person is subject to an additional separate 5% penalty (or $10,000 if greater), if the foreign trust (a) fails to file a timely Form 3520-A, or (b) does not furnish all of the information required by section 6048(b) or includes incorrect information. See section 6677(a) through (c) and the Instructions for Form 3520-A.
Additional penalties will be imposed if the noncompliance continues for more than 90 days after the IRS mails a notice of failure to comply with the required reporting. For more information, see section 6677.
Reduce or Avoid Form 3520 Late Filing Penalties
You may be able to reduce fines or penalties with a Form 3520 appeal and/or reasonable cause statement.
A Reasonable Cause submission is a very complex and delicate undertaking, There is no “form” for the submission, and you need to rely on the experience of your Tax Attorney.
Each person’s facts and circumstances are different, and reasonable cause is evaluated differently depending on who is reviewing the reasonable cause statement at the IRS. We have successfully represented 100s of clients with Reasonable Cause.
As provided by the IRS:
No penalties will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect.
Reasonable Cause Limitation
“The fact that a foreign country would impose penalties for disclosing the required information is not reasonable cause.
Similarly, reluctance on the part of a foreign fiduciary or provisions in the trust instrument that prevent the disclosure of required information is not reasonable cause. See section 6677(d) for additional information.”
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced FBAR Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.