Published: January 30, 2025 | Last Updated: February 3, 2026

Improve Administration of International Information Return Penalties by Eliminating Systemic Assessments, Offering a First-Time Abatement Waiver, and Increasing Taxpayer Awareness

Background

Taxpayers abroad face significant challenges in meeting their U.S. tax obligations and they are plagued by a complex tax code and declining levels of IRS customer service. They can be liable for severe penalties for failing to file or incorrectly filing their tax returns and complicated international information returns, of which they may not be aware. Yet, they have no access to in-person IRS assistance and almost no ability to access free return preparation assistance. Additionally, taxpayers abroad often encounter significant delays in receiving correspondence from or sending correspondence to the IRS and have insufficient timeframes in which to respond to key IRS notices, which causes them to lose critical administrative, due process, and judicial rights. Other challenges include difficulties in obtaining Individual Taxpayer Identification Numbers and checking on their application status, access to only one dedicated IRS telephone line (that is not toll-free), language barriers, problems accessing online resources, and limited payment and refund options. Despite the multitude of challenges facing taxpayers abroad, the IRS offers only limited assistance, and many IRS systems are still not compatible with the needs of this population. The complexity of U.S. tax laws and the lack of accessible IRS customer service and assistance burdens taxpayers, especially those abroad, causes frustration, and impedes compliance. To protect taxpayer rights and improve voluntary compliance for this population, the IRS needs to educate and assist taxpayers abroad, improve customer service options, and reduce the challenges these taxpayers face.

Highlights

Status

Activities

Activity 1: Continue to advocate for the IRS to end the systemic assessment regime for Chapter 61 international information return penalties.

Activity 2: Continue to meet with the IRS Office of Servicewide Penalties and the Taxpayer Experience Office to discuss extending eligibility for first-time abatement to all international information return penalties regardless of whether the underlying return was filed late.

Activity 3: Advocate for updating the lRM to require review of reasonable cause relief requests before assessing penalties when these requests are submitted in conjunction with late filed international information returns potentially giving rise to penalties. (closed 1/3/25)

Activity 4: Collaborate with the IRS to discuss the possibility of adding language to the Schedule B and related instructions to include foreign gifts as potentially reportable.

Activity 5: Participate in the Office of Servicewide Penalties working group to propose administrative reviews in lieu of systemic assessment of International Information Return (IIR) penalties and to develop more efficient mechanisms for taxpayers to mitigate IIR penalties by showing reasonable cause, proof of timely filing, or application of the first-time abatement administrative relief prior to assessment.

Activity 6: Propose and participate in a new TAS-IRS working group to explore a civil penalty-free version of the Delinquent International Information Return Submission Procedures, under which taxpayers who are not under audit and have no income to report can come forward, file delinquent information returns, and remain compliant for future years to avoid penalties.

Activity Update

Activity 1: TAS is continuing to work with the IRS to end the automatic assessment of international information return (IIR) penalties and promote the use of administrative reviews instead. TAS continues to participate in calls with the Office of Servicewide Penalties (OSP) to monitor the IRS’s progress in reviewing Form 3520-A penalties if there is a reasonable cause (RC) statement attached to the return. TAS also continues to work with OSP to advocate for efficient processes to allow taxpayers to avoid penalties through reasonable cause, proof of timely filing, or First Time Abatement (FTA) relief before penalties are assessed. The IRS plans to apply the FTA to eligible taxpayers starting in 2026.

Activity 2: TAS continued to work closely with the IRS to end the automatic imposition of penalties related to international information returns (IIR). Instead, TAS advocates for the use of administrative reviews as a fairer alternative. Beginning in 2026, the IRS plans to implement First Time Abatement (FTA) for qualifying taxpayers and will stop automatically assessing certain penalties when reasonable cause is established. TAS remains committed to advancing procedures that help taxpayers avoid unnecessary penalties allowing consideration of reasonable cause, proof of timely filing, or FTA relief before penalties are imposed.

Closed Activity 3: Advocate for updating the lRM to require review of reasonable cause relief requests before assessing penalties when these requests are submitted in conjunction with late filed international information returns potentially giving rise to penalties. (closed 1/3/25)

Closed Activity 4: On October 24, 2024, the IRS publicized the policy change. Due to the policy change, TAS withdrew the request. Recommend this activity be closed.

Closed Activity 5: The IRS will roll out the automation of First Time Abatement (FTA) to systematically apply FTA to all eligible taxpayers for returns due after 01/01/2026. On 10/24/24, the IRS announced they will stop the automatic assessment of late filed Forms 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, Part IV and Form 3520-A, Annual Return of Foreign Trust With a U.S. Owner, penalties if there is a reasonable cause (RC) statement attached to the return and the RC is accepted. TAS continues to work with the Office of Servicewide Penalties to propose administrative reviews in lieu of systemic assessment of International Information Returns (IIR) penalties. The goal is to develop more efficient IIR penalties by showing reasonable cause, proof of timely filing, or application of the first-time abatement administrative relief prior to assessment. Recommend this activity be closed.

Closed Activity 6: TAS met with the Office of Service wide Penalties in June 2024 and continues to advocate for a civil penalty-free version of the delinquent international information return submission procedures. The National Taxpayer Advocate (NTA) included in her 2024 Annual Report to Congress “Civil Penalty Administration” as one of the top 10 Most Serious Problems (MSP) facing taxpayers. The NTA recommended the IRS consider establishing civil voluntary disclosure programs to encourage voluntary and future compliance. Recommend this activity be closed.

1st Quarter Actions Completed

In FY 2024, TAS met with the Office of Servicewide Penalties quarterly and will continue to advocate for extending eligibility for first-time abatement to all international information return penalties regardless of whether the underlying return was filed late.

On November 20, 2024, the IRS updated Internal Revenue Manual (IRM) 20.1.9.13.3 and IRM 20.1.9.14.3 to clarify reasonable cause statements should be considered before manually assessing penalties, when included with late-filed Forms 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, and Forms 3520-A, Annual Return of Foreign Trust With a U.S. Owner. In conjunction with TAS continuing to advocate for extending eligibility for first-time abatement to all international information return penalties, TAS will advocate for updating the relative IRM(s). This activity is now completed based on the IRM changes.

On March 15, 2024, the Taxpayer Advocate Service (TAS) submitted a recommendation to the product owner, adding language to the Schedule B and related instructions to include foreign gifts as potentially reportable. On October 17, 2024, the IRS informed TAS it will stop the automatic assessment of late filed Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts Part IV, and Form 3520-A, Annual Return of Foreign Trust with a U.S. Owner penalties if there is a reasonable cause (RC) statement attached to the return and RC is accepted. On October 24, 2024, the IRS publicized the policy change. Due to the policy change, TAS withdrew the request.

2nd Quarter Actions Completed

TAS will continue to work with the Office of Servicewide Penalties to propose administrative reviews in lieu of systemic assessment of International Information Return (IIR) penalties and to develop more efficient mechanisms for taxpayers to mitigate IIR penalties by showing reasonable cause, proof of timely filing, or application of the first-time abatement administrative relief prior to assessment. TAS met with the Office of Servicewide Penalties quarterly in FY2024 and will continue to advocate for extending eligibility for first-time abatement to all international information return penalties regardless of whether the underlying return was filed late. On March 15, 2024, the Taxpayer Advocate Service (TAS) submitted a recommendation to the product owner, adding language to the Schedule B and related instructions to include foreign gifts as potentially reportable. On October 17, 2024, the IRS informed TAS it will stop the automatic assessment of late filed Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts Part IV, and Form 3520-A, Annual Return of Foreign Trust with a U.S. Owner penalties if there is a reasonable cause (RC) statement attached to the return and RC is accepted. On October 24, 2024, the IRS publicized the policy change. Due to the policy change, TAS withdrew the request.

3rd Quarter Actions Completed

TAS continued working with the IRS to end the automatic assessment of international information return (IIR) penalties and promote the use of administrative reviews instead. The IRS plans to apply the First Time Abatement (FTA) to eligible taxpayers starting in 2026 and will stop automatically assessing certain penalties if reasonable cause is provided. TAS continues to advocate for efficient processes, allowing taxpayers to avoid penalties through reasonable cause, proof of timely filing, or FTA relief before penalties are assessed.

4th Quarter Actions Completed

TAS is continuing to work with the IRS to end the automatic assessment of international information return (IIR) penalties and promote the use of administrative reviews instead. TAS continues to participate in calls with the Office of Servicewide Penalties (OSP) to monitor the IRS’s progress in reviewing Form 3520-A penalties if there is a reasonable cause (RC) statement attached to the return. TAS also continues to work with OSP to advocate for efficient processes to allow taxpayers to avoid penalties through reasonable cause, proof of timely filing, or First Time Abatement (FTA) relief before penalties are assessed. The IRS plans to apply the FTA to eligible taxpayers starting in 2026.

TAS continued to work closely with the IRS to end the automatic imposition of penalties related to international information returns (IIR). Instead, TAS advocates for the use of administrative reviews as a fairer alternative. Beginning in 2026, the IRS plans to implement First Time Abatement (FTA) for qualifying taxpayers and will stop automatically assessing certain penalties when reasonable cause is established. TAS remains committed to advancing procedures that help taxpayers avoid unnecessary penalties allowing consideration of reasonable cause, proof of timely filing, or FTA relief before penalties are imposed.

Following TAS’s recommendation, the IRS began evaluating whether taxpayers abroad should be classified as limited English proficiency (LEP). On March 1, 2025, Executive Order (EO) 14,244 was signed Designating English as the Official Language of the United States. This rescinded EO 13,166, which required agencies to provide LEP services, and suspend existing guidance.

TAS actively engaged in data-gathering efforts to ensure taxpayers abroad have sufficient time to respond to IRS correspondence. In addition, TAS reviewed Internal Revenue Manual (IRM) provisions through Internal Management Document process to support this work. TAS is considering addressing this issue on its next Annual Report to Congress, proposing administrative recommendations to the IRS. TAS is also making Legislative recommendations which, if enacted, would lessen compliance challenges with respect to IIRs. Additionally, TAS is considering including recommendations in the Purple Book dealing specifically with hardships from mail delays for taxpayers abroad.

TAS continues to review the IRS’s international FAQs covering tax issues for U.S taxpayers living abroad, including those related to disaster recovery. TAS assisted in the IRS development and implementation of an international disaster fax number for bulk relief requests. TAS will continue to monitor and make additional recommendations for clearer information for our taxpayers overseas.

Next Steps

TAS will monitor the IRS plans to apply the FTA to eligible taxpayers starting in 2026. Please plan to carry-over as there is no FY26 SAO to align to.

Return to FY25 TAS Operational Plan