Responding to an IRS Notice for foreign Account, Asset & Trust Penalties
IRS Notice for Foreign Account, Asset or Trust Penalties
Each year, U.S. Taxpayers across the globe will receive various types of Internal Revenue Service notices and letters involving many different IRS issues, including taxes owed, penalties, liens, levies, and more. When it comes to offshore tax and reporting, the notices are very important because they can be time-sensitive and potentially involve staggeringly high automatically assessable penalties. Especially with the international assessable penalty issue, the taxpayer may not have had an opportunity to challenge the penalty before the penalty was assessed.
Some of the common types of notices taxpayers will receive from the IRS involving offshore and international related matters include:
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CP15 notice
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504 Notice
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Letter 843
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Letter 1058
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John Doe Summons
These different IRS notices have different requirements in terms of response times and due dates, so taxpayers must be very careful and review the specific notice they receive. Unfortunately, it is human nature to not want to open a letter from the IRS — under the presumption that it may be bad news — but not opening the notice may put the taxpayer into an even worse position. Thus, taxpayers should be sure to review the notice when it arrives. Let’s look at five (5) different offshore notices that taxpayers may receive from the IRS on offshore-related matters.
CP15 Notice (Assessed Penalty)
The CP15 Notice for purposes of international information reporting penalties typically involves a penalty assessment for failing to file certain foreign tax forms such as Form 3520 or Form 5471. Taxpayers usually have 30 days to protest the letter and 15 days to submit payment if they prefer to submit payment instead of protesting. The IRS is very strict with the due date so when taxpayers receive a CP15 notice, they must stay aware of when their 30-day response time expires.
Letter 854 (Penalty Request Denied)
Oftentimes, IRS Letter 843 will be received from taxpayers when they submit a reasonable cause submission to the IRS to avoid or abate international penalties, but that submission was rejected or denied by the IRS. Taxpayers usually have 60 days to file an appeal with the IRS Independent Office of Appeals. Taxpayers who intend to submit an appeal should be aware of the due date along with what is required specifically to be included in the contents of their appeal package.
504 Notice (Unpaid Amount Due)
The 504 Notice is an IRS collection notice that taxpayers receive once they have been assessed a penalty from the IRS. These notices are very common in the world of international information reporting — and some taxpayers will receive multiple 504 Notices over a several-month period. It is important to note, that while these notices are scary and altogether uncomfortable and unfair for taxpayers, there is generally no immediate response time due date associated with this letter.
Letter 1058 (Intent to Seize)
The letter 1058 is very important and is usually the final letter the taxpayer will receive before a levy is issued. The letter provides an opportunity for the taxpayer to submit a Collection Due Process Hearing request. Letter 1058 is a Final Notice of Intent to Levy and it gives the taxpayers 30 days to respond. Taxpayers must respond within 30 days or else they will generally lose the opportunity to pursue a Collection Due Process Hearing. Oftentimes, assessable penalties are automatically assessed — so taxpayers have not had any opportunity to dispute the penalty in person — and the Collection Due Process Hearing is very important to set the taxpayer up to pursue a Tax Court petition (if the CDP hearing is unsuccessful). If the collection due process hearing request is not submitted within 30 days, it may be rejected.
John Doe Summons
When the taxpayer receives a John Doe summons, they should be sure to reach out to a tax lawyer before responding — since the summons provides a short time window for the taxpayer to respond. The IRS may seek to have the taxpayer appear in person and/or provide documents to the IRS. Sometimes these documents are not technically required to be submitted to the IRS and the request by the IRS may be overbroad. Taxpayers should be sure to respond to the IRS in the time they are allotted but should also be sure to speak with a specialist before making any communications with the IRS.
Late Filing Penalties May be Reduced or Avoided
For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.
Current Year vs Prior Year Non-Compliance
Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.
Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties.
Need Help Finding an Experienced Offshore Tax Attorney?
When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.
This resource may help taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.
Contact our firm today for assistance.