Navigating Form 3520 to Avoid Triggering IRS Violations

Navigating Form 3520 to Avoid Triggering IRS Violations

Navigating Form 3520 to Avoid Triggering IRS Violations

Expanding upon our recent articles about FBAR and Form 8938 triggers, Form 3520 is an IRS international tax form that is used to report foreign gifts, trusts, and inheritances to the IRS. While Golding & Golding have authored several different articles online that you can access involving Form 3520, common filing examples, and how the IRS penalizes taxpayers for non-compliance, this article will focus on avoiding common non-compliance triggers. When it comes to Form 3520, the taxpayer must file their Form 3520 timely and accurately to try to avoid any errors that could trigger a violation — and ultimately a Form 3520 penalty. Let’s look at three (3) common ways taxpayers can reduce the chance of triggering a Form 3520 foreign gift, inheritance, or foreign trust violation.

File Form 3520 Timely

The first thing taxpayers should be aware of is the Form 3520 filing due date. Form 3520 is due when the taxpayer’s tax return is due, which is typically in April. If the taxpayer files an extension for their tax return, then the Form 3520 will go on extension as well (this rule does not apply to Form 3520-A, which requires a Form 7004 to extend the time to file). Thus, taxpayers should do their best to file this Form timely.

Use Accurate Form 3520 Values

Another common issue we find with Form 3520 is that taxpayers do not report the values accurately. If the value is not reported accurately, then the taxpayer should go back and amend Form 3520 to ensure the values are accurate. This can be especially concerning in situations in which the taxpayer has transferred the gift from overseas (international wire transfer audit) to the United States or the gift remains in a foreign account. Since under FATCA (Foreign Account Tax Compliance Act), many Foreign Financial Institutions (FFI) report the value of foreign accounts held by U.S. persons to the U.S. government, if the values reported by the FFI do not align with the value of the gift (depending on what the balance was in the account before the gift), then this can become an issue and trigger a potential violation.

Submit Form 3520 to the Correct IRS Office

Even though Form 3520 coincides with the filing of Form 1040, it may be submitted to a different location than the 1040 return. Taxpayers who are required to file Form 3520 submit the Form 3520 to Ogden, Utah — even if their tax return goes to a different location. Taxpayers may also want to use a service that provides delivery confirmation or an equivalent so that they can confirm that the package was received by the IRS — since in recent years the IRS has been in the habit of assessing automatic penalties when Form 3520 is submitted late.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them. 

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) 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 who 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. 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. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

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.