Making a FOIA Request in Conjunction with Form 3520 (6039F)
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Making a FOIA Request in Conjunction with Form 3520
Should You Make a FOIA Request?
One of the most common types of international information reporting assessable penalties is a Form 3520 penalty for an Internal Revenue Code violation of Section 6039F (unreported foreign gift). We have successfully represented many people in avoiding and abating penalties involving foreign gifts. One question we have received (usually after the taxpayer consulted with less-experienced counsel) is about making a FOIA request (Freedom of Information Act) request in order to obtain underlying documentation for the Form 3520 penalty to make sure it was issued properly. In general, the strategy does not work well (due to the 6751 automatically calculated by electronic means exception) and can be very costly to the taxpayers.
IRC Section 6751 Assessment of Penalty Procedure
In order for an assessable penalty to stand, it had to be issued properly. Sometimes that means it requires a supervisor’s written approval, but there are exceptions to this requirement contained in the statute – primarily when the penalty is electronically assessed. Form Form 3520, these penalties are generally automatically (and electronically) assessed simply based on the amount of time that has passed and the value of the gift – a 5% penalty per month, up to 25%. If the penalty was electronically assessed properly (as is usually the case), then the 6751 immediate supervisor requirement is not necessary.
Section 6751
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(a) Computation of penalty included in notice
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The Secretary shall include with each notice of penalty under this title information with respect to the name of the penalty, the section of this title under which the penalty is imposed, and a computation of the penalty.
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(b) Approval of assessment
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(1) In general
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No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.
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(2) Exceptions
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Paragraph (1) shall not apply to—
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(A) any addition to tax under section 6651, 6654, 6655, or 6662 (but only with respect to an addition to tax by reason of subsection (b)(9) thereof); or
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(B) any other penalty automatically calculated through electronic means.
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Beware of FOIA Attorney fees
If an attorney or other tax professional is going to take the position with a client that they should make a FOIA request, it also important that the attorney explains to the client what the costs (and attorney’s fees to try to enforce/litigate the request) will be. Unfortunately, the IRS has many reasons why it can limit its response to Form 3520 FOIA requests and generally, the response does not come timely from the IRS (or without a fight).
Fighting a Form 3520 Penalty
To get a better understanding of how to fight a form 3520 penalty, we have a detailed Form 3520 Penalty Abatement article to assist you.
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