IRS Ends Automatic Penalties for Late-Filed Foreign Gift Forms

As of October 2024, the IRS is ending automatic penalties for late-filed Form 3520’s in relation to foreign gifts and bequests.  This is not an all-encompassing relief for the form, but specifically Part IV on the Form 3520.  Commissioner Danny Werfel says that they “will now review the reasonable cause consideration statements that are attached to these late-filed forms before issuing penalties.”  The Taxpayer Advocate Service pushed this issue, acknowledging that in dealing with relatives overseas and issues pertaining to foreign estate/ bequests, taxpayers shouldn’t have to worry about penalties on disclosure forms while navigating all the moving pieces of passing with their grief.

Additionally, starting in 2025, the service will look at any attached reasonable cause statements for late-filed Forms 3520 and 3520-A before assessing any Internal Revenue Code (IRC) §6677 penalty.  Currently, penalties are assessed regardless of if a reasonable cause statement is attached; taxpayers can only then protest the penalties after they are established.  Now the IRS will review these prior to reduce the burden on taxpayers with legitimate reasonable cause.  Currently, a good portion of these penalties are abated, but that takes time, and taxpayers still receive notices with payments due.  The IRS hopes this helps reduce the burden on taxpayers in relation to these disclosure forms, especially those trying to correct omissions when learning of them.

For questions regarding this Tax Alert, please contact Senior Manager Sam Guis at [email protected].



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