Assessable Penalties for International Information Reporting Forms

Assessable Penalties for International Information Reporting Forms

How to Fight Assessable Penalties for International Form: IRS International Reporting Form Penalties can be complicated. The penalties are not based on unreported income, and they often arrive unannounced in the US Taxpayer’s mailbox — care of a CP15 Penalty Notice. For Taxpayers who were issued Internal Revenue Service offshore penalties, one of the more complicated aspects is how Taxpayer can fight the assessable penalties. With these types of assessable penalties, Taxpayers have an uphill battle to remove or abate – noting, the process is nowhere near as depsperate as some Tax Professionals want to make it seem (read: fear mongering). 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. Let’s take a look at what Assessable Penalties are and how to dispute them.

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, Taxpayers are automatically in a defensive position and have 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 — simply because the Taxpayer does not know about the penalty until it is issued. Under most circumstances the Taxpayer’s first notice of the penalty will be when they receive a CP15 Notice identifying the penalty amount, the basis for the penalty — and the code section that the penalty refers to. But, despite the defensive position these Taxpayers are put into — the fact that many of these penalties are not based on unreported income does help support their reasonable cause position, in order to reduce or abate the penalty.

Defense to Assessable Penalties & Reasonable Cause

Unfortunately, there is some misinformation online regarding disputing assessable penalties resulting from international reporting noncompliance — and that because it is an assessable penalty, the Taxpayer has little chance of getting the penalty removed with reasonabl cause — but that is just another form of fear mongering. Oftentimes, reasonable cause to avoid and eliminate penalties. While it is not a guarantee, most Taxpayers who receive a notice of assessed penalty in accordance with form 3520, 5471, 8938 etc. will usually have many facts to support their position that the noncompliance was not due to willful neglect.

Form 12153 CDP Hearing

A Form 12153 CDP is available for Form international reporting penalties, including assessable penalties at a later stage 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. Especially with the delay in the mail system due to COVID-19 — and many agents working from home and only intermittently checking their mail– there is the concern that the delay in the IRS receiving and processing the collection due process request may result in an unintentional levy or lien being placed on their accounts or property.

While the taxpayer should presumably be able to get it removed, just having it ever show up on their record can be a very big deterrent for many taxpayers to wait until the CDP is allowed — versus taking the Collection Appeal Process route.

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.

Golding & Golding: About our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure and IRS offshore penalty abatement, including assessable penalties.

Contact our firm for assistance.