IRC 6751 Procedural Requirements & Form 3520/6039F Assessed Penalties

IRC 6751 Procedural Requirements & Form 3520/6039F Assessed Penalties

IRC 6751 Procedural Requirements & 3520 Penalty 

IRC 6751 Procedural Requirements & 3520 Penalty Mitigation: There is an old (and wise) idiom that says — hope springs eternal. And, with the way the world has been for the past year or two, anything that involves thinking positive, is a good thing. But, in the land of international tax law — it should be taken with a grain of salt. This is especially true in the dangerous world of the IRS and Form 3520 penalties which are oftentimes automatically assessed and electronically generated. When a Taxpayer gets a CP15 Notice, the path of least resistance for the Taxpayer is most often to respond to the letter in order to set the stage for a reasonable cause penalty abatement argument. Instead of going this route, some less experienced attorneys recommend to their clients to let the CP15 Notice lapse — file an (expensive) lawsuit and pin their hopes and dreams on a penalty abatement using Internal Revenue Code Section 6751 — which is neither specifically tailored for Form 3520 assessable penalties nor even applicable when the penalty is electronically assessed and meets the requirements of 6751(a) — which is commonplace for most 3520 penalties. In general, showing Reasonable Cause from the outset is the most effective method for abating Form 3520 penalties and/or setting the Taxpayer on the right path to eliminate or reduce 3520 penalties at a later stage if necessary. It should be noted that Taxpayers can still make a FOIA request re IRC 6751, while still proving Reasonable Cause — they are not mutually exclusive of one another — but the timing of the FOIA request must also be considered.

Let’s take a look of how the Internal Revenue Code section 6751 procedural requirements work.

IRC 6751 Procedural Requirements

When your entire legal argument hinges on a procedural issue — you need to find a new position — unless that is literally all you have left to go on. And usually this is not the case when a Taxpayer even has an inkling of a Reasonable Cause argument. IRC 6751 is a procedural issue argument that may or may not even apply to a  person’s 3520 penalty — depending on how the penalty was issued (individual person vs electronic assessment). 

Let’s take a look at code section 6751:

26 U.S. Code § 6751 – Procedural requirements

(a) Computation of Penalty Included in Notice

The Secretary shall include with each notice of penalty under this title information with respect to the name of the penalty, the section of this title under which the penalty is imposed, and a computation of the penalty.

What does this Mean?

It means that in order for the Internal Revenue Service to issue a penalty, the taxpayer must be aware of the:

      • name of the penalty,

      • the code section, and

      • how it was computed. 

Most of the time, taxpayers receive a form 3520 notice on a CP15 Letter, and the CP15 notice is a standard boilerplate form that meets all of the elements under 6751(a).

(b) Approval of Assessment

      • (1) In general

        • No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher-level official as the Secretary may designate.

      • (2) Exceptions

        • Paragraph (1) shall not apply to

          • (A) any addition to tax under section 6651, 6654, or 6655; or

          • (B) any other penalty automatically calculated through electronic means.

(c) Penalties

      • For purposes of this section, the term “penalty” includes any addition to tax or any additional amount.

What does this Mean?

It means that the penalty cannot be issued unless it is personally approved in writing by the immediate supervisor of the person who made the determination. BUT, there is an exception to this rule — which is that if the penalty was calculated automatically through electronic means — than it is not required.

Form 3520 penalties are required to be approved by a supervisor/manager as required under section (b) (1).

Even if the penalty was not approved in writing, it is usually calculated automatically, based on:

      • Amount of Gift/Trust Distribution or Value; and

      • Length of noncompliance

Responding to a CP15 3520 Penalty Notice

It is important to make sure the taxpayer timely responds to the CP15 notice.  If the taxpayer is going to let the time run out and go an alternative route based on a 6751 procedural issue, it is important that they have a firm strategy from the attorney with an understanding of the different steps and what other options for penalty mitigation they are giving up in the process – and full knowledge of the costs to litigate from the outset.

International Tax Law Specialist Team: Golding & Golding

Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure, including help clients with late reporting of Forms 3520 and 3520-A and Form 3520 Penalty & Relief Procedures.

Contact our firm for assistance.

Font Resize