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We Are Searching For Victims Of IRS Form 3520 And 3520-A



A Form 3520

It all started with the letter written by one of our members, Gary Carter who wrote an article titled Foreign Trusts: IRS Penalty Notices For Late Forms 3520-A Traumatize Many Innocent Taxpayers. The purpose of my post today is to share some of the stories that have followed and to call out all tax professionals and taxpayers to help by sharing their experiences with us by commenting on this blog post. The more we can explain what is occurring with Form 3520 and 3520-A the more we are able to bring this issue to the attention of the IRS and NTA. We will start by sharing the stories and comments that have already surfaced but we need more to be impactful. Please share this with anyone you know and ask them to contribute to the comments on this post. Everyone counts so your input is valuable!

Here are some of the stories that have emerged:

Comment From Post On Topic

First off, thank you so much for your efforts regarding this problem. I was an international student prior to 2017 and since I had never worked in the US until I received my permanent residency in 2018, I wasn’t exactly familiar with taxes, let alone the form 3520. I received over a $100,000 in 2017 and found out about form 3520 a couple months after the due date. I immediately hired a tax attorney and filed this form. A year later, I received a $38,000 penalty for failure to file this form.. This is absolutely ridiculous and makes no sense to receive a penalty this high whatsoever. As other victims, I did not owe any taxes on the money received and I did my best to file this form with good faith before I received any type of penalty.

Another issue that really bothers me is that, the initial penalty is 5% of the total amount received which is still terribly high. If there is a problem, the IRS must let the taxpayer know right away. Instead, they waited until the 25% maximum limit was reached to send me the penalty notice. I don’t even know what to say about this and it is just wrong on all levels.

As all of the other victims, I’m also seeking for help and I’d like to contribute to the resolution of this problem in any way I can. Please make me a part of this solution and once again, thank you so much for your efforts. ~Barin

Comment From Post On Topic

It gets worse. We have submitted 3520-A clearly marked “Protective Submission: This is not a Foreign Trust” and explained why not. In one case one of two trustees of a testamentary trust had renounced citizenship, but the trustees had no discretion, all matters listed in the law and regulations to make a trust “foreign” being fixed by the Will, including delegating investment decisions to a named broker. We attached the 3520-A to the usual 1041 and K-1. Typically, IRS refused to address the question of whether the trust is (at least until a replacement U.S. citizen co-trustee can replace the renunciant one, a complicated procedure involving court approval in N.Y.S.) indeed foreign. And we have had arguments in other non-grantor cases whether there is indeed a “U.S. owner”: the IRS seems not to appreciate that the child born abroad to an “accidental American” is likely not a U.S. citizen but there is no way to prove that aside from applying for a passport and being refused: not a good idea if one can’t find positive proof that the (single) mother (of a child born prior to June 12, 2017) never in her 45 years of life spent 365 uninterrupted days in the USA. We have never in fact been charged with the $10k penalty, but such threats, coupled with the nastiness of PFIC taxation, taxation of foreign exchange phantom gains, risk of taxation of foreign government disability and tax-sparing accounts and subsidies, and pension anguish (another 3520 and PFIC morass for U.S. citizens in most foreign countries) motivate renunciation; Or total noncompliance and “going underground” since (according to our research, to be published by NYU Law’s GlobaLex in November) there have been almost no prosecutions of overseas dual-national Americans without U.S. income, assets, presence or family.

In the second case above, IRS Ogden continues, every 90 days, to send us a letter saying they need more time. That’s been every 90 days for two years, and despite the fact that over a year ago we sent them a copy of the trustee’s CLN.

As an advisor one has to advise every client or prospective client to be totally compliant with every relevant country’s tax law. But what about when those laws clash, or conflict with the rights of non-U.S. Persons? Often enough it is in the client’s best interest to do some self-study in matters of “wilfulness”, “statutes of limitation”, “jurisdiction”, “community property”, “transferee liability” and risk-taking. Things that may be inconsistent with the ethics of the advisor accepting that individual as a client. At least unless and until the non-U.S. spouse and family have counsel of their own.

The very rich (well advised and able to afford the costs and taxes) and the very poor (with little to report and nothing to lose, especially dual nationals living abroad who don’t need their U.S. passports) are largely free of the concerns of 3520, 3520-A, 5471, FBAR and other penalties. It’s the middle class for whom a $10,000 penalty is likely more than a month’s pay, would require liquidation of assets belonging to a non-U.S. spouse or impossibility of payment, that these vicious penalties for ignorance, inadvertence, slothfulness are tragic and family-breaking.  ~Andrew Grossman

Comment From Post On Topic

Thanks for sharing your experience and the response that you sent to the IRS Gary. Appreciate you shining a light on this awful and traumatising development. I’ve just received a $10,000 penalty notice too. I have only ever tried to do the right thing. I now live in fear, not just about whether I have submitted & ticked all the right boxes for this form, but about remaining in compliance. Until know there seemed to be an obviously naive belief in forums and blogs that duals and/or “expats” would not be targeted in such a cavalier and brutal way. I’ve contacted my preparer but I feel despondent that the IRS would act in this way and that those impacted, some far worse than me, will have to live In uncertainty and fear for so long, possibly, it seems, up to a year.~Metoo

Comment From Post On Topic

“I couldn’t help but notice your article on the $10,000 late filing penalty relating to the 3520/3520-A and in spite of going through the streamline process with HR Block I’ve been hit with this (in the UK) and in spite of sending a letter requesting an abatement, the IRS keeps sending me letters saying they need more time whilst also sending bills with interest. The latest being an intention to cease assets as I’d go bankrupt trying to pay a fine that is worth more than an ex workplace pension plan that I can’t even access until 2040! Any advice on this matter would be appreciated!

Comment From Post On Topic

We have certainly seen a number of such notices for substitute forms 3520a issued to our clients. The notices have not been issued in every instance and this inconsistent application leads me to think that there is a person or a team who simply haven’t been adequately trained.

If the IRS is empowering an employee to be in a position to issue a penalty for $10,000, it is incumbent on the IRS to not only provide the necessary training, but also ensure the right checks and balances exist to ensure that mistakes of this magnitude do not occur. I have had to deal with taxpayers who are in tears over the notices (in this instance the notice was issued in relation to a NZ pension fund which is treated as a trust, which contained around $600).

None of us are infallible, but when errors do occur, it is only proper to have a system in place to correct it. In my discussions with the IRS processing team (I too have sent abatement requests and called), I have been informed that the current timeframe for my letters to be assigned is 250 days!

So taxpayers, who have made their best efforts to comply with complex legislation are being penalised unfairly and having to wait the best part of a year to be heard! I fail to see how that will help the IRS’ goal of increased compliance in this area (the purpose of the LB&I division campaign announced last May). Taxpayers talk to each other, and if the wait time to resolve these issues cannot be reduced to a matter of a few weeks, it’s campaign will back-fire spectacularly.

I agree that the proper course of action would be an apology. I am not convinced that the apology part of this scenario will come to fruition sadly. ~ Stuart

Comment From Post On Topic

Thanks for this update on this matter. I too have been unexpectedly hit with this same penalty in the exact same situation, and like your client, have found it traumatizing. While my accountants and I push back on the IRS, your post (and others online) suggests that it may take nearly a year for me to get a result. I’m eagerly awaiting any further updates on this matter – in particular around your contact with the National Taxpayer Advocate and the Tax Advisory Panel, and I hope for a resolution that helps everyone affected.~ Peter

Comment From Post On Topic

Thank you so much for this post. I dealt with the exact same issue, and only wish that my tax attorneys had dealt with the IRS with such tenacity while providing this level of care for me, their client. The IRS not only lost the original 3520-A (signed for on delivery), they lost the evidence that was submitted (and signed for on delivery) TWICE. This led to my penalty increasing with interest and eventually being sent to collections. They threatened to seize my property. This all happened over the course of 8 months, and each letter increased my stress, upset and lack of faith in the system. Finally, my tax attorney got hold of someone who assessed my case on the spot and cleared the fine. Apparently I’ll receive a letter confirming this, but I highly doubt I’ll get an apology. ~ Xavier

Comment From Post On Topic

Thank you for both your articles on this, I just received my letter of penalty for failure to file 3520-A even though my accounting firm did so along with the 3520. But here’s the real kicker, the penalty fee is $246,000.05 and “no” that is not a typo! Where they came up with that figure is beyond me as it is meant to be the higher of $10,000 or 5% the asset value of the trust and I certainly don’t have that much in the way of assets for that to be 5%! It is somewhat comforting to know I am not the only one being targeted and my accounting firm is not the only one who did not understand the complex, complicated and confusing filing extension process. I am however disheartened to hear that you have not had any resolution. Keep up the good work, I wish you had been my accountant. ~ littleoldme

Comment From Post On Topic

I have been having his same tax issue recently. Form 3520 with a 3520A substitute attachment was filed within the extension due date of the 1040 return. A penalty was assessed as if the 3520A was filed late. I agree the the instructions for Form 3520 and the IRM seem to indicate that things are timely filed under this scenario. I hope there is some type of REV-PROC or pronouncement that clears these things up; it would be great to know what the resolution is on your end. ~ Brendan

Comment From Post On Topic

Well! I have contacted my elected representative Senator, and I have expounded on the problem! In addition, I have brought it to the attention of the Taxpayer advocate representative, thanks to the assistance of my representative senator assigned to my case! I have also contacted the Tax Compliance industry Law Office that made the error, in filling a FORM 3520 and to date they have been hiding under the carpet! You see, when you work via email and fax, being located in Europe, eye to eye physical presence contact is not a readily available option! As for myself, being the victim thrown under the bus, I resort to the established procedure filing appeals within the IRS system! ~ George

Comment From Post On Topic

Interestingly we are seeing a shift in attitude from “when in doubt file Form 3520” to “when in doubt (as long as the doubt is reasonable) do NOT file Form 3520”. The whole idea of what conservative filing means is evolving.

The 3520 problem is a specific instance of the reality that (1) it’s very difficult for Americans abroad to know what is expected of them and (2) the penalties for “so called” mistakes are outrageous.

People are not renouncing U.S. citizenship because they want to. They are renouncing U.S. citizenship because they have to. ~ John Richardson

We ask you to provide your commentary on your personal experiences as we can get more done working together.

Kat Jennings, CEO TaxConnections

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5 thoughts on “We Are Searching For Victims Of IRS Form 3520 And 3520-A

  1. Avatar E. Rose says:

    Dear Gary, I was also assessed a CP15/$10k fine for late filing of 3520/3520-A for 2017 (my tax preparer wasn’t aware that the March 15th deadline was being strictly enforced). I have written the IRS to request abrogation, first letter was “lost”, despite sending registered mail, and I wrote them again upon receiving a notice of levy. It’s quite stressful to deal with the situation due to the long delivery times for the notices (sometimes up to 6 weeks or more to deliver to Europe) and needing to call, check status, request putting collection on hold, etc. IRS cannot tell me when to expect an answer to the request for abrogation. Overall I find this situation quite distressing, I don’t understand why such a large fine is immediately imposed when I have made all efforts to demonstrate good faith in filing the forms. What if the form is lost in the mail, as I’ve seen others mention on this thread? It’s all completely unreasonable. Would appreciate any suggestions about how to raise this concern with anyone who can help rectify the situation.

  2. Avatar Asher says:

    I am also a witness for a potential client who got 30k in penalties for late filing of 3520.

  3. Avatar D says:

    I am a foreigner living in U.S. in a work visa (not green card holder or citizen). My parents, who are living in my home country, sent me money for helping me apply for green card via investing in the U.S. EB-5 program. Without evening getting the green card yet, I received an extremely scary penalty from IRS of $170k for late filing of form 3520, because my CPA was not aware of the due day of the ‘foreign gift’ reporting requirement and didn’t file it until 2 years later. IRS assumes me, as a foreigner, to know their specific form that even a professional tax accountant does not know well. And they refused to recognize relying on CPA is a reasonable cause for late filing. I’m in such desperation and panic and don’t know what to do. Please, please help here!!

    • The lesson is that you should leave the United States permanently. Alternatively if you decide to stay, under NO circumstances should you get the Green Card. The Green Card is in reality a permanent resident visa. Once you have the permanent resident visa for 8 years you will NOT be able to leave the USA without being subject to the Section 877A Expatriation Tax (look it up). If you stay in the United States you will forever be subject to tax system that is incomprehensible, unjust, penalty laden that assumes the taxpayer is wrong. There are plenty of other countries that will welcome you, provide you with good economic opportunities and not presume that you are trying to cheat the system (which can’t be understood anyway).

  4. Avatar Suzanne says:

    Well we just yesterday received the dreaded failure to file on our trust, dated Oct 6 with 30 days to respond before they start heaping fines on us.

    Our accountant flipped today when we told him, and said he’d filed everything properly and to join the stacks of other people in Canada receiving the same letters.

    I’ve been informed by Laura Snyder, Americans abroad rep with the Taxpayer Advocacy Panel that TAP has submitted a recommendation about this to the IRS. They’re now waiting for the IRS’s response. It does not expect to receive their response for another few weeks at the earliest.

    I don’t know what basis the IRS to do this – perhaps they’re just shaking the trees to see what falls out.

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