IRS Penalties for Mistakes Regarding Forms 3520 and 3520-A

 Posted on March 17, 2020 in Taxation Law

The more complex a person’s assets and debts, the more complex his or her tax return will typically be. Non-U.S. trusts and trusts involving gifts from people outside the United States require especially specific tax documentation. Taxpayers who fail to file the applicable tax documents or make errors on trust-related tax forms are subject to significant penalties imposed by the Internal Revenue Service (IRS). Determining which tax forms are needed and accurately completing these forms is increasingly time-consuming and stressful for many taxpayers. Fortunately, a qualified tax attorney can help. If you are required to file tax Form 3520 or 3520-A this tax season, it is crucial that you complete this paperwork promptly and accurately.

Form 3520 and 3520-A Errors Can Cost You

When reporting transactions with non-U.S. trusts, ownership of non-U.S. trusts subject to Internal Revenue Codes 671 - 679, or receipt of gifts from non-U.S. persons or businesses, you may need to file Form 3520. If you are the trustee of a foreign grantor trust with a grantor in the United States, you will likely be required to file Form 3520-A. Form 3520 is due by April 15. However if the taxpayer lives and works outside the United States, the deadline is June 15. Form 3520-A must be filed by March 15. Time extensions may be granted for qualifying applicants who take the appropriate steps.

If you are required to submit Form 3520 and the form is incomplete, inaccurate, or is not filed before the deadline, you will be subject to a penalty. The initial penalty is typically the greater of $10,000 or 35 percent of the value of the property added to the trust, 35 percent of the distributions received by the U.S. beneficiary, or 5 percent of the value of the trust assets owned by the U.S. grantor. Taxpayers may be subject to additional penalties and other consequences if the noncompliance continues after the IRS notifies the taxpayer of the compliance issue.

Contact a San Jose Tax Attorney

Penalties for failure to file Forms 3520 and 3520-A accurately and on-time are harsh. To ensure that you fully meet your filing obligations and avoid expensive IRS penalties, get assistance from a San Jose, CA tax lawyer. Attorney John D. Teter has over 30 years of experience successfully helping clients with filing requirements, compliance issues, and an array of other tax concerns. Call the John D. Teter Law Offices today at 408-866-1810 and schedule a confidential consultation to discuss your needs.

Sources:

https://www.irs.gov/forms-pubs/about-form-3520

https://www.irs.gov/pub/irs-pdf/i3520a.pdf