What is LTR 854C? How to Respond & IRS Traps and Pitfalls

What is LTR 854C? How to Respond & IRS Traps and Pitfalls

The LTR 854C

When a person first receives a notice of a Form 3520 penalty, it will usually arrive by way of an IRS CP-15 Notice. The CP-15 Notice reflects that the penalty has already been assessed – which is different than a non-international penalty, in which an actual “penalty assessment” does not come until later in the process. The Taxpayer who receives the CP-15 Notice then gets 30 days to protest the letter. If the protest is rejected and/or the taxpayer had already submitted the reasonable cause letter with the original Form 3520 (or other international information reporting form), they will receive a LTR 854C. Taxpayers have to be careful when responding to the LTR 854C as it may prevent a Collection Due Process Hearing (CDP) later in the process.

The Letter 854C Penalty Waiver or Abatement Disallowed

The Letter 854C Penalty Waiver or Abatement Disallowed is about 4-pages long and summarizes the decision to reject the protest. It also provides an opportunity for an appeal as follows:

• • • APPEALS PROCEDURES

      • If you have additional information and want your case to receive further consideration by the IRS Independent Office of Appeals provide a detailed written statement of the dispute issues along with supporting documentation, to the Service Center Penalty Appeals Coordinator within 60 days from the date of this letter.

Should You Appeal a Rejected Protest?

As with all things in life, it is what the letter does not tell you that is most crucial to your case. Appealing a rejected penalty protest may sound tempting and oftentimes the appeal is a good way to try to dispute the penalty. But, there is a major negative impact to consider. If the appeal is unsuccessful, that is generally the end of the matter. In other words, it ends with appeals (with very limited exceptions).

In addition, if you do appeal then you generally lose the right to a Collection Due Process Hearing (while it is not written in stone, the IRS can and does take the position an appeal would be you one bite at the collection appeals apple). With a Collection Due Process Hearing, (CDP) the Taxpayers (usually) has the chance to go before a Settlement Officer (SO) instead of an AO (Appeals Officer). This may offer a better chance for a settlement. In addition, the Taxpayer can petition the US Tax Court if they lose the CDP – and generally, this means the tax court will slingshot the case back to appeals to try to resolve the matter.

Waiting for a CDP Can Have Its Own Share of Headaches

There are downsides to a CDP as well. The Taxpayer has to wait until the matter is ripe for CDP. This usually means they have waited 6-18 months. In that time, they will receive various notices and nasty letters such as a 503/504 Notice – along with a Final Notice of Intent to Levy or and actual Notice of Federal Tax Lien (although the opportunity may come sooner if the IRS levies a state refund).

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as Form 3520 requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to streamlined procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead of the Streamlined Procedures. But, if a willful Taxpayer submits an intentionally false narrative under the streamlined procedures (and gets caught), they may become subject to significant fines and penalties. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.