What are 3520 Assessable Penalties and How to Fight Back Against IRS

What are 3520 Assessable Penalties and How to Fight Back Against IRS

Form 3520 Assessable Penalties

3520 Assessable Penalties and How to Fight Back Against IRS: Unlike penalties for underpaying tax or even tax fraud, an assessable penalty is different. With an assessable penalty, the Taxpayer does not get to dispute the penalty before it is issued. Rather, it is issued — and let the IRS games begin. For US Taxpayers who were issued IRS offshore penalties, one of the more complicated aspects of foreign gift penalties is what happens when a Taxpayer gets hit with one of these “assessable penalties. “While assessable penalties do put Taxpayers in a defensive position at the get-go – it is nowhere near as bad as some Tax Professionals want to make it seem (read: fear mongering) with recommending Taxpayers let the clock run-out and hightail it to Court.  Oftentimes, Taxpayers can get their penalties removed if they are able to prove reasonable cause and show the Taxpayer did not act with willful neglect — in which the IRS issues a CP21C letter waiving the penalty.

Let’s take a look at 3520 Assessable Penalties and how to fight back against the IRS.

IRC 6671 (Rules for Application of Assessable Penalties)

  • (a) Penalty assessed as tax

      • The penalties and liabilities provided by this subchapter shall be paid upon notice and demand by the Secretary, and shall be assessed and collected in the same manner as taxes.

      • Except as otherwise provided, any reference in this title to “tax” imposed by this title shall be deemed also to refer to the penalties and liabilities provided by this subchapter.

IRM Assessable Penalties (20.1.9.1.5)

      • Assessable Penalties—Penalties listed in this section, unless otherwise noted, are assessable penalties and are not covered by deficiency procedures of IRC 6211 through IRC 6215 (relating to deficiency procedures for income, estate, gift, and certain excise taxes). Assessable penalties are paid upon notice and demand.

      • For assessable penalties, there is no 30-day letter, no agreement form, and no notice requirements prior to assessment. See Exhibit 20.1.9-3, Quick Guide for Reference Numbers to Process International Penalty Assessments, for a list of penalty reference numbers (PRNs). The PRN identifies the applicable IRC section and dictates the explanatory language in the assessment notice.

      • Note: Written supervisory approval of penalty assessments is required, and notice letters are required prior to assertion of certain penalties. See IRM 20.1.9.1

What does this Mean?

It means that when the penalties are considered assessable penalties (such as 3520 Assessable Penalties), Taxpayers are automatically in a defensive position and are limited procedures available for taxpayers to dispute the penalty. The Taxpayer does not have an opportunity to dispute the matter first before the penalty is issued — if for no other reason than the fact that the Taxpayer does not know about the penalties until the IRS issues the notice of penalty. Under most circumstances the Taxpayer first learns of the penalty notice when they receive a CP15 Notice identifying the 3520 assessable penalty amount, the basis for the penalty — and the code section that the penalty refers to.

Despite the defensive position these Taxpayers are placed into — the fact that an international information reporting penalty was issued when no unreported income was presence helps to support the Taxpayer’s reasonable cause position — and can be persuasive in getting the penalty removed.

Reasonable Cause to Dispute 3520 Assessed Fines

Unfortunately, there is some misinformation online regarding disputing 3520 assessable penalties — and that because it is an assessable penalty, the Taxpayer has little-to-no chance of getting the penalty removed — but that is just another form of fear mongering. Oftentimes, reasonable cause can help avoid or eliminate penalties — and/or set the Taxpayer on the right path for cost-effectively getting the penalty waived. While it is not a guarantee, most Taxpayers who receive a notice of assessed penalty in accordance with form 3520 will usually have several facts and circumstances that they can use to convince the IRS an office of appeals that the penalty was not due to willful neglect.

    • IRC 6039F(c)(2) provides that no penalty shall apply for failure to furnish the required information if the U.S. person shows that the failure is due to reasonable cause and not to willful neglect.

Form 12153 CDP Hearing 

A Form 12153 CDP is available for Form 3520 Penalties, but much later in the process.

The Collection Due Process hearing is typically only available at the end-game stage of a tax enforcement matter such as notice of federal lien or intent to levy. The Collection Due Process hearing and requests must be made timely within 30 days of the final notice.

As long as it is made timely then the taxpayer has the option of Tax Court available.

In addition, the taxpayer can dispute the underlying collection enforcement by showing reasonable cause. This is generally not available when using a CAP.

As provided on Form 12153:

      • “I do not believe I should be responsible for penalties.” The IRS Independent Office of Appeals may remove all or part of the penalties if you have a reasonable cause for not paying or not filing on time.

      • See Notice 746, Information About Your Notice, Penalty and Interest for what is reasonable cause for removing penalties.”

The main concern with the Collection Due Process hearing for most taxpayers is they have to wait until the very end of enforcement before they can seek to use this process.

If a person misses the time to file a Collection Due Process hearing, they may still be able to request it — but they do not get the opportunity to go to Tax Court if it doesn’t go their way — this is referred to as an equivalent hearing.

About our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure and 3520 Assessable Penalties.

Contact our firm for assistance.

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