The Time-Sensitive CP15 Notice for Form 3520 Penalty
While the FBAR is the most common of the offshore penalties, it is not the only kid on the block. There are many different types of international reporting penalties — and many reasons why a US Person Taxpayer may receive a CP15 Notice. Three (3) of the most common reasons are for failure to file international information reporting forms, such as Form 3520/3520-A (Foreign Gifts or Trusts); Form 8938 (Foreign Account Tax Compliance Act aka FATCA), and Form 5471 (Reporting Foreign Corporations). If you receive a CP15 Notice, it is important to take heed of the timing requirements to lodge a protest (usually 30-days). Before submitting the protest letter, you should speak with a Board-Certified Tax Law Specialist at an International Tax and Law firm specializing in these matters to ensure you get a good lay of the land – and avoid incorrect information from more general tax lawyers with little actual experience in this highly complex area of International Tax Law, which can leave the Taxpayer in a worse position than they started in.
CP15 Notice Explained
When a taxpayer has been assessed an IRS penalty, they may receive a notice from the IRS on a CP15 Notice. The CP15 puts the taxpayer on “notice” that the IRS has assessed a penalty against the taxpayer for noncompliance. Oftentimes, the reporting is in relation to international tax or reporting penalties. The more common international reporting penalties, include:
Form 3520/3520-A (Foreign Gifts or Trusts)
Form 8938 (Foreign Account Tax Compliance Act aka FATCA) and
Form 5471 (Reporting Foreign Corporations)
Assessable Penalty Definition
An assessable penalty is complicated – and altogether unfair. That is because an assessable penalty does not provide any notice to the Taxpayer before the penalty is issued. It is not until after the CP15 Notice is actually received that the Taxpayer first receives notice of the penalty. Once the penalty is received, the Taxpayer has a limited time to respond to the notice in order to protest the penalty. The protest is important because the protest is typically required for non-docketed cases in order to move the case forward if for any reason the protest is not accepted, and the Taxpayer wants to appeal the matter to the IRS Office of Appeals or move forward with a Collection Due Process Hearing.
Can You Establish Reasonable Cause
If a taxpayer has been assessed a penalty and received a CP15 notice, oftentimes if they are able to establish reasonable cause and not willful neglect — the penalty can be waived or abated. The problem becomes that typically when the initial protest letter is sent, it is not going to be reviewed by an agent or examiner who has any particular specialty or knowledge in the area of international tax –– which can lead see what feels like an automatic rejection, with the IRS not really providing a thorough analysis or explanation for the rejection of the reasonable cause statement. The process of disputing the penalty is oftentimes long and arduous and requires an international tax and legal specialist team with specific experience in this area. Just going to a general practitioner tax law firm that handles everything under the sun is not sufficient for these types of complex matters.
CP15 Notice Appeal and/or CDP Fight
If the protest is rejected, taxpayers should take caution before just filing an appeal letter because it may have an impact on the ability to move forward with the Collection Due Process Hearing if the appeal is rejected or denied. In general, Collection Due Process Hearing may be more beneficial than an appeal although not always. Our team has resolved many form 3520 cases (and other international reporting penalties) with an appeal and no additional hearing necessary – but no team can guarantee success which is why it is important to make an informed decision about strategy and counsel before moving forward.
International Tax Lawyers Represent Clients Worldwide
Our International Tax Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm for assistance.