Extension for Form 3520
Extension for Form 3520: When it comes to IRS form 3520, one of the biggest issues for US Person taxpayers is when they have to file the 3520 form after the due date — May 17 for 2021 — even when an extension has been timely filed. While technically this does not mean that the Form 3520 is being filed “late,” per se — since it was filed after May 17, it can cause an issue. This is because Form 3520 is submitted at a different location (usually) than your tax return — which is Ogden, UT. And, sometimes, the computers are not all updated and synched sufficient to show a timely tax return extension form and/or payment was made. This can lead to an automatic assessed penalty for filings that happened after May 17 — even when the person filed the form timely because they were on extension.
What to do about form 3520 when you are filing it after May 17?
Attach Notice of Extension with a June or December Due Date
Even though a person may file for an extension simply by making a payment of the estimated tax due for 2020 — additional care must be taken if there is a Form 3520 reporting requirement. The reason why is because oftentimes the IRS will issue automatic assessed penalties when a taxpayer files the form 3520 late — these penalties can reach 25% value of the foreign gift and upwards of 35% value when it involves a foreign trust.
The form 3520 is filed in a separate location. Therefore, if at the time of the 3520 being filed, the IRS computer systems are not updated to reflect there was an extension granted because an estimated payment was made — and the agent who receives the 3520 forms believes that no extension form 4868 was filed — it may lead to an automatic assessed penalty.
While the taxpayers should be able to get this penalty removed, it may require significant amount of time and allocation of resources if an attorney is required.
Form 3520 Complicates Tax Extension Filing
In conclusion, when a taxpayer is required to file a form 3520, it is important that they file it timely. If they are going to have to request an extension to file it after the original due date, it may be beneficial to the taxpayer to file a form 4868 and use that method to apply for an extension — and attach a copy of the extension to the actual form to the 3520 Form.
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