Navigating Missed IRS Form 3520 Filings: Implications and Resolutions
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Taxpayers who have missed filing IRS Form 3520, which is used to report transactions with foreign trusts and receipt of certain foreign gifts, face several implications and potential resolutions. Here are the key points to consider:
Monthly Penalties: For late filings of foreign gifts or bequests, the penalty is 5% of the value of the gift or bequest for each month the form is late, up to a maximum of 25%.
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Automatic Penalties: Previously, the IRS automatically imposed these penalties upon late filing. However, recent changes indicate that the IRS has ceased this practice and will no longer automatically assess penalties for late submissions of Form 3520.
File the Missing Forms: The most straightforward resolution is to file the missing Form 3520 as soon as possible. This can help mitigate or eliminate certain penalties, especially now that the IRS has stopped automatic penalties for late filings.
Show Reasonable Cause: Taxpayers can defend against penalties by demonstrating reasonable cause for the late filing. This involves providing a valid explanation for the delay, such as illness, natural disasters, or reliance on a tax professional who provided incorrect advice.
Use the Streamlined Filing Compliance Procedures: For taxpayers who are non-willful in their failure to file, the IRS offers the Streamlined Filing Compliance Procedures. This program allows taxpayers to catch up on their tax filings without facing penalties, provided they meet certain criteria.
Penalty Relief Programs: The IRS may offer penalty relief programs for specific tax years. For example, the IRS has provided relief for 2019 and 2020 tax returns, allowing taxpayers to avoid penalties without needing to take any additional steps.
Legal and Professional Assistance: Engaging a tax professional or legal advisor can help navigate the complexities of IRS filings and penalties. They can assist in preparing and filing the necessary forms, negotiating with the IRS, and defending against penalties.
Conclusion
Taxpayers who have missed filing IRS Form 3520 should act promptly to file the missing forms and consider the available resolutions to mitigate potential penalties. Recent changes in IRS policies offer some relief, but proactive steps are essential to address the issue effectively.