Form 3520/3520-A Amnesty
Form 3520 Amnesty: When a US person has certain transactions with a foreign trust or received large gifts from a foreign person (including individuals or entities) they may have an IRS form 3520 and 3520-A requirement. If a person does not file the forms timely, they may be subject to fines and penalties. These penalties can be relatively high in light of the violations, especially when most taxpayers do not even have any unreported income. Instead, the only thing missing from their tax return is that they did not disclose their relationship to the foreign trust and/or reporting a gift from my foreign person (usually a relative)
If a person is filing late form 3520 or 3520- A, then they should consider making an amnesty submission.
What is Tax Amnesty for Form 3520/3520-A
The purpose of a a taxpayer making an amnesty submission is so that they can avoid an IRS penalty for noncompliance. In the best of circumstances, the amnesty request is made before the penalty is issued. If instead, the taxpayer makes the request after the penalty has been issued, this is technically referred to as a penalty abatement request — which is a request to abate or “remove” an already issued IRS Form 3520/3520-A penalty.
Delinquency Procedures Closed in 11/2020
Prior to November 2020, the Internal Revenue Service had specific procedures in place to assist taxpayers with making an amnesty request. The technical term for the program is the Delinquent International Information Return Submission Procedures (DIIRSP). unfortunately, in November of 2020, the IRS closed DIIRSP.
What made the program so great, was that if the taxpayer could show reasonable cause and there was no unreported income, the IRS would almost always waive penalties.
Reasonable Cause or Streamlined Procedure
Taxpayers still have an opportunity to avoid penalties, but the hill they much climb to get there is a bit steeper. Instead of submitting under delinquency procedures, the taxpayer will either submit a reasonable cause submission package or a streamlined procedure package. The Taxpayer should assess their overall tax noncompliance to determine which program is right for them.
For example, are the forms 3520/3520-A the only forms missing from this submission — or other or foreign accounts, assets, investments, or income also missing — which may lead to a streamlined disclosure submission instead of reasonable cause.
If instead, the taxpayer is willful, they will not qualify for any of these alternatives and instead would submit under the voluntary disclosure program (VDP).
In conclusion, if a person has not filed a timely form 3520 or 3520- a the IRS has various amnesty programs available that the taxpayer can submit to in order to get into compliance. If it turns out the taxpayer has more than just delinquent form 3502/3520-A, they may require a more comprehensive amnesty alternative such as the streamlined procedures.
International Tax Lawyers: Foreign Gift, Trust & Inheritance
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure, including help clients with late reporting of Forms 3520 and 3520-A.
Contact our firm today for assistance with getting compliant.