3520-A Penalty

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caninus
Posts: 5
Joined: Thu Dec 27, 2018 1:36 pm

3520-A Penalty

Post by caninus » Thu Dec 27, 2018 1:51 pm

Hi all, hoping to get some insight here. I filed forms 3520 and 3520-a this year in May after extending my 1040 in April. I just received a letter from the IRS stating that a $10,000 penalty has been charged due to failure to file form 3520a. I haven't called the IRS yet as they are shut. It seems that the penalty is for a late filing of the 3520-a.
I looked back and read the 3520-a instructions in more detail and realized that it was due on March 31. I did not file the 7004 extension for it as I assumed that the 3520-a would go with the 3520. The 3520 and 3520-a was for my tfsa that i closed in 2017.
I filed the 3520-a under the name of the foreign trust tfsa account with all the relevant information and attached the grantor and beneficiary statements to the 3520. So basically the 3520-a filer was 'My Name-TFSA account'. This is the way our accountant had done in the previous 2 years. This year, I decided to file on my own. So I guess the 3520-a was not a substitute 3520-a as the trust (myself) filed the 3520-a.

Just wondering what my options are now? Will the IRS abate this penalty? I have filed all my FBARs, included all my income from my TFSA in my tax returns and filed all other returns on time and owe no amounts to the IRS. This was not something willful. Has anyone gone through this? What was your outcome? Any suggestions will be appreciated.

nelsona
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Re: 3520-A Penalty

Post by nelsona » Thu Dec 27, 2018 4:38 pm

Your post is a little confusing (to me).

You said "So I guess the 3520-a was not a substitute 3520-a as the trust (myself) filed the 3520-a." Huh?

What did you file, and when?
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

caninus
Posts: 5
Joined: Thu Dec 27, 2018 1:36 pm

Re: 3520-A Penalty

Post by caninus » Thu Dec 27, 2018 5:51 pm

Sorry for the confusion. I filed the 3520 and the 3520-A in May 2018 together. The 3520 was extended when I filed my 1040 extension.

What I meant was - On Form 3520, Part II, Line 22 'did the trust file Form 3520-A for the current year' - I indicated 'Y' as I filed Form 3520-A for the trust. I did not indicate 'N' and attach a substitute 3520-A.

I guess what I was trying to get to was that what is the difference if I had filed it for the trust vs the trust filing the 3520-A. The trust is my account anyway.

I'm not sure if the above has anything to do with the penalty or not. Has anyone had a 3520-A penalty for late filing or incorrect filing?

ND
Posts: 148
Joined: Thu Feb 21, 2013 5:28 pm

Re: 3520-A Penalty

Post by ND » Thu Dec 27, 2018 9:13 pm

note that a number of practitioners believe that TFSA is not a foreign trust and therefore not subject to 3520 filing at all. This argument provides one avenue of push-back. In fact, you can google and find template letters to IRS on web spelling out the reasoning and citations for such argument, a strong one.

nelsona
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Re: 3520-A Penalty

Post by nelsona » Fri Dec 28, 2018 11:30 am

Hard to undo the fact that he has (a) already filed 3520 for previous years and (b) filed 3520-A late this year. The poster views it as a trust.

But, to his original question, not sure why they would not have accepted your 'substitute' 3520-A, since it is a clear IRS provision for the owner to file this in lieu of the trustee.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

caninus
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Re: 3520-A Penalty

Post by caninus » Sun Dec 30, 2018 1:57 pm

Thanks for the comments. Does anyone have any experience with where they sent in a reasonable cause letter or had a penalty abated?

nelsona
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Re: 3520-A Penalty

Post by nelsona » Mon Dec 31, 2018 12:10 pm

What reasonable cause do you have? You sent it in previous years, and this year you sent it late. So you can't plead ignorance.

It would be worth seeing a US tax pro on this; probably cost you less than $10K.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

ND
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Re: 3520-A Penalty

Post by ND » Wed Jan 02, 2019 10:25 am

RE: Hard to undo the fact that he has (a) already filed 3520 for previous years and (b) filed 3520-A late this year. The poster views it as a trust.

Under that logic if a taxpayer mistakenly filed 3520 every year on account of owning a banana and thinking that requires 3520, the taxpayer cannot make a correction of error in a later year.

nelsona
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Re: 3520-A Penalty

Post by nelsona » Wed Jan 02, 2019 1:17 pm

But he can't claim he forgot about the banana: he SENT the 3520.
He'd be better off fighting the fine,
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Ron.Henderson
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Joined: Sun Jan 06, 2019 2:24 pm

Re: 3520-A Penalty

Post by Ron.Henderson » Sun Jan 06, 2019 2:29 pm

The lesson here is to minimize "form-crime" risk by not report things like TFSAs that are not being reported under FATCA. Any reason why the OP needs to be compliant? Might be cheapest to just go dark, if they are dual with no US financial exposure.

CdnAmerican
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Joined: Tue Aug 30, 2011 12:15 am

Re: 3520-A Penalty

Post by CdnAmerican » Wed Jan 09, 2019 11:22 pm

Hi Caninus - I received a couple of those letters a few years ago, and they are terrifying! My situation was different - I had filed the forms but had an error on a couple; I then made the mistake of sending a single letter to cover multiple forms, and this was not credited to my proper form. Long story short, I received a penalty (several, actually, for several different accounts). I was eventually able to speak to a human in the correct department; she was then able to find my prior submissions and she simply abated the penalty. My thought is that if you can speak to a person in IRS, that's your best first option. If that doesn't work, I would certainly bring a professional in to get help. It's a ridiculously high penalty, of course, and hiring someone is much less than $10K. Good luck!
Not a professional opinion.

caninus
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Joined: Thu Dec 27, 2018 1:36 pm

Re: 3520-A Penalty

Post by caninus » Sat Jan 12, 2019 1:23 am

Thanks for your replies everyone. Cdnamerican-that certainly gives me hope. The IRS is closed so no luck speaking to a live person for now. I am working on coming up with a reasonable cause letter that I will register mail before the 30 days are up on the notice. Will see if I can speak to someone before that. I went back and looked at my filings for the past 2 years and they were always late. My first year in the US, an accounting firm had prepared the returns and mailed the 3520-A in late. I did it by myself in 2016 and followed what the accountants did in 2015 and mailed it in late as well. I didn't know that it was due March 15 and I guess just assumed it was due with the 3520 which was extended. Anyway, the IRS had sent me a letter for the 2016 year that stated that they received the 3520-A and that no further action was necessary. I guess that the letter received was due to the fact that they acknowledged that the form was late and that no further action would be needed.

The 2017 is the 3rd time is late. I'm thinking that the penalty was assessed because of this! I truly did not know that it was due March 15! Ugh if I had read the instructions carefully and at least extended it! Anyway, it is what it is. I just have to deal with it and see if they can do something about it.
It truly sucks as the penalty is so large!

Another point is that the CP15 notice that I got says that the penalty is for a late filing or not including the required information or including incorrect information. I'm not sure what the penalty is for a late filing (it probably is) or incorrect or missing information. Not sure why the IRS is not specific on the penalty.

CdnAmerican
Posts: 219
Joined: Tue Aug 30, 2011 12:15 am

Re: 3520-A Penalty

Post by CdnAmerican » Tue Jan 15, 2019 11:03 pm

Hi Caninus - That sounds like a form letter from the IRS, which would explain why the reason was vague. That's probably a good thing, suggesting that the computer spat it out. You've got several methods of recourse to try: 1) Talk to a human at IRS. If that doesn't work, 2) Call the Taxpayer Advocate Service. Or, 3) Write a letter requesting abatement, and 4) Contact an accountant. It is terrible timing to get such a letter, as there's no one there to call right now! There might be other strategies too, but all of these seem reasonable. Keep us posted ..
Not a professional opinion.

caninus
Posts: 5
Joined: Thu Dec 27, 2018 1:36 pm

Re: 3520-A Penalty

Post by caninus » Wed Feb 06, 2019 7:02 pm

Just wanted to update anyone who is interested or will go through this. I had sent a reasonable cause letter with all my support documents and believe it or not a $10,000 check to the IRS before the 30 day mark. I called today as the check was cashed (as I suspected) and talked to someone in the International department. The agent reviewed everything and told me that it was a major error on their part and I should have never got a notice of that kind at all! As I had extended my return, my 3520-A was extended as well. And yes, they do think that TFSAs are trusts! I asked!

He said that what normally happens is that that letter should have been approved by a manager there before it went out in the first place. So a big mistake by someone there. He reversed the penalty and a check is being mailed out soon. I'll be happy when I receive it though!

Anyway, wanted to share this. This forum has lots of great advice and I did find lots of things that helped me formulate my reasonable cause letter. I shall share it once I have some time.

ND
Posts: 148
Joined: Thu Feb 21, 2013 5:28 pm

Re: 3520-A Penalty

Post by ND » Wed Feb 06, 2019 7:18 pm

RE: And yes, they do think that TFSAs are trusts! I asked!
Whoopdy do, the low level minimum wage processor, one of 100,000 IRS employees, told you you over the phone such and without citation. That employee probably doles out incorrect info on a regular basis.
I personally spoke with the top intl tax brass at IRS and IRS position is to intentionally not take a position on this matter. As well, William Yates, retired from IRS Intl chief counsel,also said same thing.

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