What is CP21C for Waiver of Form 3520 Penalty?

What is CP21C for Waiver of Form 3520 Penalty?

CP21C Waiver of Form 3520 Penalties

What is CP21C for Abatement of Form 3520 Penalty: When a Taxpayer has successfully presented a reasonable cause statement to the IRS after having received a Form 3520 Penalty — the IRS may agree and waive the previously issued penalty. Upon waiver, the IRS will issue a CP21C letter — removing the penalty. Golding & Golding has been very successful in avoiding and removing Form 3520 penalties via reasonable cause. While a Reasonable Cause Letter does not guarantee to resolve the submission, it is a cost-effective method for seeking to reduce and abate penalties — in contrast to spending hundreds of thousands of dollars to litigate the matter in court.

Here is a an example of a letter we received for abatement of a Form 3520 Penalty. 

Changes to your 2018 Form CVL PEN Amount-due:

      • “We changed the civil penalty amount that we Summary previously charged.

        • Our action is the result of your inquiry of [Date 2020]

        • Account balance before this change of $[   ] Month, Year, 2020.

        • Decrease in Failure to File Form 3520 to Report Receipt of Certain Foreign Gifts or Bequests penalty [Amount]

      • As a result you don’t owe us any money, nor are you due a refund.”

What is Form 3520 Reasonable Cause?

The IRS provides an exception to penalties if the filer can show Reasonable Cause:

    • “Reasonable Cause:

      • No penalties will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect. Note. The fact that a foreign country would impose penalties for disclosing the required information is not reasonable cause.

      • Similarly, reluctance on the part of a foreign fiduciary or provisions in the trust instrument that prevent the disclosure of required information is not reasonable cause. See section 6677(d) for additional information. Section 6039F.

      • In the case of a failure to timely report foreign gifts described in section 6039F, the IRS will determine the income tax consequences of the receipt of such gift, and a penalty equal to 5% of the amount of such foreign gifts applies for each month for which the failure to report continues (not to exceed a total of 25%).

      • No penalty will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect. See section 6039F for additional information. Section 6662(j).

      • If a U.S. owner of a foreign trust is subject to a penalty imposed under section 6662 for an underpayment of tax required to be shown on a return, then such penalty may be increased under section 6662(j) for any portion of an underpayment which is attributable to any transaction involving any asset with respect to which information was required to be provided on Form 3520-A. For more information about undisclosed foreign financial asset understatements, see section 6662(j).

      • No penalty will be imposed with respect to any portion of an underpayment if the taxpayer can demonstrate that the failure to comply was due to reasonable cause with respect to such portion of the underpayment and the taxpayer acted in good faith with respect to such portion of the underpayment. See section 6662 and section 6664(c) for additional information.”

A well-written and thorough tax/legal reasonable cause statement can significantly help to avoid or abate Form 3520 penalties. 

Missed Filing Form 3520 & Reasonable Cause?

Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure, including help clients with late reporting of Forms 3520 and 3520-A and Reasonable Cause Form 3520 submissions.

Contact our firm for assistance.

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