late reporting 3520a penalty on RESP account

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rrspresp
Posts: 8
Joined: Tue Apr 08, 2014 11:59 pm

late reporting 3520a penalty on RESP account

Post by rrspresp »

Recently got the 10k penalty letter for late reporting 3520a on RESP in 2018. 3520 was filed before 4/15/2018. I didn't know 3520a was needed until IRS sent a letter to request it. Then mailed 3520a in 5/2018. What reasonable cause can be used for late filing? Any chance to get the penalty waved? FBAR was filed on time and the value increase was reported on 1040.
ND
Posts: 281
Joined: Thu Feb 21, 2013 5:28 pm

Re: late reporting 3520a penalty on RESP account

Post by ND »

IRS exempted RESP from 3520 reporting, go that route, not the r/c route
rrspresp
Posts: 8
Joined: Tue Apr 08, 2014 11:59 pm

Re: late reporting 3520a penalty on RESP account

Post by rrspresp »

Hi ND, Thanks.

I need send appeal letter within 60 days. Do you mean using Revenue Procedure 2020-17, instead of reasonable cause for late filing in appeal letter?

The penalty abatement under IRC sec. 6677 is mentioned in Revenue Procedure 2020-17. In my letter, the penalty (failure to file timely for 3520a) is under IRC sec. 6651. Do you think I can use Revenue Procedure 2020-17?
ND
Posts: 281
Joined: Thu Feb 21, 2013 5:28 pm

Re: late reporting 3520a penalty on RESP account

Post by ND »

Yes, Rev. Proc. 2020-17 https://www.irs.gov/pub/irs-drop/rp-20-17.pdf provides penalty relief for taxpayers who have been assessed section 6677 penalties on qualifying tax-favored foreign retirement trusts and qualifying tax-favored nonretirement savings trusts.

To apply for relief, taxpayers should file Form 843 by mail to Internal Revenue Service, Ogden, UT 84201-0027. Under line 7 of Form 843, eligible taxpayers should indicate that they are filing for relief under “Relief pursuant to Revenue Procedure 2020-17” and include an explanation of how they meet the requirements of an eligible individual and the relevant trust the requirements of either a tax-favored foreign retirement trust or a tax-favored foreign non-retirement savings trust.

26 U.S. Code § 6651 is the generic section about a Failure to file tax return or to pay tax, which would have been the case IF RESP is a trust and BEFORE application of Rev. Proc. 2020-17 but maybe pay a pro to research this out for you. Reasonable cause arguments, absent deadly storms and illnesses, are hard, if not impossible to get IRS to approve. IRS routinely rejects most reasonable cause arguments as not meeting the required standard.

Argue that RESP is not a trust and should never have been assessed with 3520 penalties and even if assessed, Rev. Proc. 2020-17 relives 6677 and thereby 6651 as you can't be penalized even one dollar against a NIL balance owed.
rrspresp
Posts: 8
Joined: Tue Apr 08, 2014 11:59 pm

Re: late reporting 3520a penalty on RESP account

Post by rrspresp »

Thank you very much! What do you mean by "pro"? Tax attorney, enrolled agent or CPA? Do you have any good pro to recommend?

I really hope RESP is not a trust. That would have saved me lots of time on 3520/3520a.
snowbird
Posts: 27
Joined: Sat Mar 13, 2021 8:37 pm

Re: late reporting 3520a penalty on RESP account

Post by snowbird »

As I understand, proc 2020-17 is applicable for open tax years. After Apr 2022, 2018 is not open tax year.
Not sure why IRS gave penalty after 3 years.
ND
Posts: 281
Joined: Thu Feb 21, 2013 5:28 pm

Re: late reporting 3520a penalty on RESP account

Post by ND »

3 years SOL is out the door if tax underpaid
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