Help - IRS letter indicating penalty for late 3520

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

Help - IRS letter indicating penalty for late 3520

Post by CdnAmerican »

Hello! I am a US citizen living in Canada for about 6 years. After learning about the need to file Forms 3520 for my RESP last summer, I resubmitted these for the past 6 years. After reading comments from this board, my understanding was that these could be done with no penalty. As such, I submitted these in advance of the OVDI cutoff in September (noting the IRS FAQ's indicating that these forms could be done without penalty if no tax was due, which was the case for me).

However, I just received letters today indicating "We are proposing a civil penalty on the gross value of the trust." They have sent me a letter stating "You must provide us with an explanation for the cause of your late filing so we may adjust your account accordingly. This explanation will not ensure waiver of the proposed penalty."

This is rather frightening! I am hoping for guidance from nelsona or others who have experienced this. Thanks in advance ..
Not a professional opinion.
CdnAmerican
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Post by CdnAmerican »

Quick follow-up. One of the letters included the name of a specific IRS agent to call. I called, and she struck me as knowledgeable, giving quite reasonable advice about providing an explanation for the late forms (mainly, I sent them late because I didn't know about them - no tax was due, it was just a missing form). I am a bit less distressed now, but suppose I won't be completely calm until a final decision is made..

I will follow her advice and send them a letter, but am still hopeful to get any support or ideas from anyone with knowledge of this sort of situation!
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primo
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Post by primo »

That's not good news! I just wrote to you the other day on the other thread you had started about the 3520 error letter to see if you ever heard anything back. When I sent mine in, I included a letter explaining why they were late. The IRS sent me a letter back saying that they could not accept my letter requesting penalty relief because the returns weren't processed. The letter then went on to explain that after the returns are finished, if it is determined that I owe a penalty, I will receive a notice showing a penalty and at that time I can submit my letter. I imagine that I will likely get a penalty letter in a few months as well. In my letter I stated that I was unaware that the account was considered a trust, all interest from the account had been reported on the 1040s, no tax was owing, I am a dual citizen, I have lived in Canada for almost 40 years, since I was a child, and that I am completely tax compliant in Canada. I also told them that I had relinquished my citizenship last year.
Sorry I can't be more help. I'm just hoping it's a procedural thing and they need a letter to put on file before they can let you off the hook. Good luck. Let us know how it goes.
nelsona
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Post by nelsona »

Primo, The difference between you and CanAm is that he has been filing his returns each year, while you have merely caught up now.

Question for CanAm is that how have you been reporting the RESP income, since that is also to bereported in your name?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
primo
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Post by primo »

Are you saying that you are more likely to be penalized when you have been filing all along?
CdnAmerican
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Post by CdnAmerican »

Thanks Primo and Nelsona.

Primo, my suspicion is that you are right - this is just a procedural thing, and they did not make note of my initial letter stating that I just now learned of the requirement. I suspect that this fact, along with my otherwise good compliance (including filing my 2011 forms on time) will be sufficient to waive a penalty. That is at least what I am hoping.

Nelsona, I have indeed claimed all the RESP income on my 1040s. It didn't wind up making a difference as I had enough deductions to zero it out.
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nelsona
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Post by nelsona »

Actually one you has underreported their income is subject to OVDI, so yes they are more likely. One who has never filed merely makes a quiet disclosure. If no tax is owed, then no penalty.

But the point is USCs living in Canada typically owe no tax, so those that have filed in the past have already confirmed with IRS that they owe no taxes. Those filing catch-ups have to wait for IRS to agree that they owe no tax.

CanAM apparently owes no tax, so no penalty will be assessed.

As ssoon as your old tax returns are processed, you will be granted the same privilege, no doubt.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Mach7
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Post by Mach7 »

have a question regarding the 3520 and 3520a non compliance. Here is the senerio...

if one fails to file the 3520 and the IRS decided to penalize you for it, i am to understand the the penaltyis 10k or 5% of the fund....so say the fund has 12k in it...can they attach a 10 k penalty for every year you failed ot file...essentially penalizing you 30k for a 12 k account?

Does not seem to fit the crime??
nelsona
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Post by nelsona »

Can we keep this thread to the discussion please?

You ahve another quaestion ask on another thread.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Mach7
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Post by Mach7 »

Along the same thread...i have come to find out that the TFSA is considered a foreign trust....(I am a USC living in Canada)


The TFSA in question has long been collapsed, however i was mislead by my accountant during the filing my back returns, we (he) filed it as a saving account and tabulated the interest accordingly for years 2009, 10. and now 2011.

At the time i asked if it was considered a foriegn trust and if any additional paperwork needed to be filed...he said NO and i trusted him because his firm has an EIN number and is check marked to do returns on behalf of the IRS.

Since that time i have sort of confirmed that i am now tax compliant as i have called the IRS to confirm my 1040s were filed..they said they were (Not to mention thay owed me money for a couple of years...which i have since received).

My problem here is...do i come clean and file back 3520s? or should i just leave well enough alone...??

After reading the initial post here i am afraid if i do i might regret trying to 'do the right thing'
nelsona
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Post by nelsona »

Did you understand what I just said?

Unless you got a letter from IRS, or have na answer to thwe question that was aksed, get off this thread, its not yours.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
CdnAmerican
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Joined: Tue Aug 30, 2011 12:15 am

Post by CdnAmerican »

Nelsona - thanks for your 2nd reply! I think/hope you are right that there will be no penalty. I am thinking that the IRS" own guidance on this (e.g., OVDI FAQ's 17 and 18 indicating no penalty for filing of info returns last summer) should also be sufficient as well.

I will post the resolution of this when I get it. The agent I spoke with said it could take as long as 60 days to resolve once I submit my explanation.
Not a professional opinion.
CdnAmerican
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Post by CdnAmerican »

As a resolution (for now) of this, I have sent my response letter, along with the IRS letters I've received. I felt I got good advice with the IRS agent and hope that this issue will be resolved. I will post an update when I hear back, which will likely be in a couple of months. Thanks to respondents so far!
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primo
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Post by primo »

I just got a letter proposing a penalty for one of my 3520As! I tried calling IRS and got no useful advice. Do you have any pointers from your call?
Thanks
CdnAmerican
Posts: 245
Joined: Tue Aug 30, 2011 12:15 am

Post by CdnAmerican »

Well, the main help I got came from a specific agent they gave to me in my letter. What I took away from the call was along the lines of 'describe the situation in your letter and don't worry too much about it'. This was heartening though I will stop worrying when I get a letter saying I am OK! The agent noted that a description of why the submission was late (because I'd never heard of the form) would be helpful, and that upon learning about the form I took 'ordinary business care and prudence' (this is a term in some of the IRS manual; Google it to see examples) to address the situation by submitting the proper forms promptly.

I had similar language in mine (e.g., 'proposing a penalty') but I am thinking this was a form letter of sorts which is sent prior to the penalty to give the taxpayer a chance to explain the situation - otherwise, they'd just assess the penalty.

I hope that helps .. good luck!
Not a professional opinion.
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