The IRS will end its practice of automatically assessing penalties for the late filing of forms dealing with foreign gifts and bequests, a change long advocated by the AICPA and the Taxpayer Advocate Service. National Taxpayer Advocate Erin Collins discussed the updated policy in a Thursday blog post (https://www.taxpayeradvocate.irs.gov/news/ntablog/irs-hears-concerns-from-tas-and-practitioners-makes-favorable-changes-to-foreign-gifts-and-inheritance-filing-penalties/2024/10/), the same day IRS Commissioner Danny Werfel announced the changes at the UCLA Tax Controversy Conference. Werfel said the IRS will no longer automatically assess penalties at the time of filing for a late-filed Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, Part IV. That modification and the review of reasonable-cause statements attached to the late-filed forms are important changes for many taxpayers, Werfel said. “A person may be with parents living overseas; a parent dies, now you’re dealing with the estate, you’re dealing with grief, you’re dealing with all the moving pieces, and maybe in the middle of all this, you late-file your form that you’re required to file,” Werfel said at the conference.
By the end of 2024, the IRS will begin reviewing any reasonable-cause statements taxpayers attach to late-filed Forms 3520 and Forms 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner, for the trust portion of the form before assessing any Sec. 6677 penalty, according to Collins’s blog.
