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Published:   |   Last Updated: January 30, 2025

Advocate to end systemic assessment of international information return penalties and to develop a first-time abatement waiver specific to these penalties.

Objective 8

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

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Status

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Expected Completion Date

09/30/2025

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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.

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Actions Completed

1st Quarter

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.

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Next Steps

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 will continue to advocate for the possibility of ending the automatic assessment of late filed Form 3520 Parts I, II, and III.

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