IRS Ends Automatic Penalties For Late-Filed Forms 3520 And 3520-A

The Internal Revenue Service will no longer automatically impose penalties on taxpayers who file late IRS Forms 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts) reporting gifts or bequests from foreign persons, a change announced by IRS Commissioner Danny Werfel Oct. 24, 2024, during the UCLA Extension Tax Controversy Conference. Now, before assessing a penalty, the IRS will review reasonable cause statements submitted with late-filed forms reporting gifts or bequests from foreign persons to determine whether a penalty should be imposed.

On the same day, the IRS Taxpayer Advocate published on its website the further change to penalty assessments for late-filed Forms 3520 and 3520-A that report transactions involving foreign trusts. The Advocate's guidance states that by the end of 2024, before assessing a penalty, the IRS will begin reviewing any reasonable cause statements that taxpayers attach to a late-filed