New IRS Audit Program Focuses On Unfiled Forms Reporting Transactions With Foreign Trusts – Compliance Issues With Forms 3520 And 3520-A Threaten Massive Penalties

The Internal Revenue Service has instituted a new program aimed at examining the failure to file somewhat esoteric information-reporting tax forms related to a U.S. person's transactions with foreign trusts. A U.S. taxpayer faced with this particular examination risks the imposition of massive penalties, which can be as much as 100 percent of the value of the transaction not timely reported, even if there is no unreported income attributable to the transaction.

The Program

The program, Forms 3520/3520-A Non-Compliance and Campus Assessed Penalties, is conducted by the Withholding & International Individual Compliance IRS practice area. The so-called campaign will take a "multifaceted approach" to improving compliance with respect to the timely and accurate filing of information returns reporting ownership of and transactions with foreign trusts. The IRS will address noncompliance through a variety of "treatment streams" including, but not limited to,