International Reporting Form Penalty Notice – IRS Penalty Abatement
In recent years, the IRS Internal Revenue Service has significantly increased enforcement of international reporting and offshore compliance. In any year in which a taxpayer has not properly filed International reporting forms, such as forms 5471, 3520, 3520-A, 8865, 8938 and the FBAR, the IRS has the right to penalize the taxpayer.
International Reporting Form Penalty Notice
Sometimes, the IRS will issue penalties against the taxpayer, without giving the taxpayer notice that the taxpayer is non-compliant – and before the taxpayer has an opportunity to file the proper tax forms, and dispute the penalty.
Common IRS International Reporting Penalty Examples
Oftentimes, when a person receives International reporting penalties, it falls into one of the following categories:
Taxpayer has not Filed Proper International Reporting Forms
One typical example is when a U.S. person has a foreign business that requires the filing form 5471. If the IRS learns that a person has a 5471 requirement, but that the taxpayer never filed a form, the IRS will issue penalties for each Corporation that is non-compliant, and sometimes will issue the penalty across many different years.
*Another very common situation is the non-filing of FBAR Form FinCEN 114 (Reporting Foreign Accounts to the IRS) — see below.
Filing International Tax Forms Late, without Amnesty or Reasonable Cause
Here’s a common example: David received a foreign gift of $600,000 from his parents in Taiwan to purchase a new home. David was unaware that he was required to file form 3520 when he received the gift.
Due to bad information he received from his tax professional, or from online forums and Google searches, he just goes ahead and files a late form 3520 without a proper and thorough reasonable cause statement.
In a few months after David believes the situation is resolved – he receives a penalty for 25% value of the gift ($150,000)
International Quiet Disclosure
Here is another common example we deal with: Beth has foreign accounts in Hong Kong. She was unaware that she was required to file the FBAR. Instead of submitting previously required FBARs through the proper channels (aka voluntary disclosure or Amnesty), she just files six years of old FBARs.
This is commonly referred to as a “quiet disclosure.”
A few months later, Beth receives notice that she’s under IRS audit and investigation for willful penalties – which can reach 50% of the maximum value of the unreported accounts per year, up to 100% percent value of the accounts.
International Penalties Already Issued
If international penalties have already been issued, a person is no longer qualified to submit to one of the voluntary disclosure/tax amnesty such as the streamline program.
But, the individual can still maneuver to tried to reduce, limit, or eliminate International reporting penalties.
No IRS International Penalties have been Issued Yet
If you are out of IRS Offshore Compliance — and are not under audit or examination — you have options to avoid, reduce or minimize penalties.
Golding & Golding, A PLC
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.
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