Responding to an IRS Notice for foreign Account, Asset & Trust Penalties: Unfortunately, responding to an IRS notice for foreign account, asset & trust penalties is time-sensitive. That is because generally the U.S. taxpayer only has a limited amount of time to respond to the Internal Revenue Service’s notice, before the offshore penalties becomes assessed and enforced. In recent years, with the IRS taking an aggressive approach to matters involving foreign accounts compliance, along with offshore asset and investment reporting — and unreported foreign income — offshore compliance is crucial.
Responding to an IRS Notice for Foreign Asset, Gift & Trust Penalties
In the typical situation, a Taxpayer may have had no idea that they were required to report foreign accounts, assets, investments or income to the IRS.
Common reasons, include:
• Their foreign bank told them it was not reportable in the U.S.
• Their foreign bank told them the income was not taxable in the U.S.
• Their CPA or Tax Preparer never asked them
• They received bad advice of inexperienced counsel
The person continues filing tax returns incorrectly. Fast-forward to a few years later. The taxpayer is going through their mail, when they receive a certified letter from the IRS.
This can’t be good.
Typically, the IRS does not send letters updating taxpayers that everything is great, and we just wanted to let you know to keep up the good work!
The Taxpayer Opens the IRS Notice
Taxpayer opens the IRS Letter, only to find a Notice of Penalty. In more recent years, the IRS has shifted focus to:
- Foreign corporations (5471),
- Foreign gifts (3520),
- Foreign trusts (3520-A)
- Foreign Bank and Financial Accounts (FBAR aka FinCEN Form 114)
What does the IRS Notice Include?
The Notice includes a brief summary of the penalty.
For example, the taxpayer may have filed late forms 5471 or 3520, but the Taxpayer did not properly submit to the Streamlined or Delinquency Procedures, and/or submitted an inadequate Reasonable Cause Letter (which is very common).
If it was a foreign gift, it may include the total value of the gift ($800,000 for example), and amount of penalty ($200,000 or 25%).
Alternatively, the penalty notice will include the total number of late filed Form 3520-A or 5471, and the total penalty for each late filed form, for each year.
Time to Respond to the IRS Notice
The time to respond to the notice will vary, depending on the type of notice.
Usually, taxpayers will have 30-days to respond.
Some notices require an appeal to be made (not a court appeal, but rather a protest to the appeals division). Other times, the notice may include the contact of the local IRS manager with instructions on how to communicate (Letter, Call, etc.)
These IRS Notices are Time-Sensitive
These IRS Notices are very time-sensitive.
That is because the failure to respond timely to the notice may result in the penalty being assessed and enforced. The IRS may pursue a Notice of Levy or Lien on the Taxpayer’s property (foreign or domestic)
When it involves the FBAR, it will include aggressive follow-up by the IRS, usually culminating in the U.S. filing an FBAR Penalty Case against the taxpayer in Federal Court. (FBAR cannot be enforced in tax court, since it is not a tax crime).
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 Offshore 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.