The IRS has announced changes to its penalty assessment procedures for late-filed Forms 3520 and 3520-A, which are required to report large foreign gifts or inheritances.
Under Section 6039F, U.S. recipients of such gifts must file an information return with the IRS. However, because these gifts and inheritances are generally tax-exempt, many taxpayers are unaware of this requirement.
Historically, taxpayers filing the form late have faced steep, automatically assessed penalties — up to 25% of the gift or inheritance’s value — even when no tax was due. This often resulted in significant financial burdens for individuals unaware of their filing obligations.
At the UCLA Tax Controversy Conference, IRS Commissioner Danny Werfel announced a significant shift in this practice. Starting by the end of the year, the IRS will no longer automatically assess penalties for late-filed Forms 3520 and 3520-A. Instead, the IRS will review any reasonable cause statements attached to these late filings before determining whether to impose penalties.
This change provides taxpayers the opportunity to explain their circumstances and potentially avoid penalties if they can demonstrate a reasonable cause for the delay. The update marks a critical step in addressing concerns about fairness and compliance for taxpayers navigating complex international reporting requirements.
Contact:
Content disclaimer
This content provides information and comments on current issues and developments from Grant Thornton Advisors LLC and Grant Thornton LLP. It is not a comprehensive analysis of the subject matter covered. It is not, and should not be construed as, accounting, legal, tax, or professional advice provided by Grant Thornton Advisors LLC and Grant Thornton LLP. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this content.
For additional information on topics covered in this content, contact a Grant Thornton professional.
Grant Thornton LLP and Grant Thornton Advisors LLC (and their respective subsidiary entities) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations and professional standards. Grant Thornton LLP is a licensed independent CPA firm that provides attest services to its clients, and Grant Thornton Advisors LLC and its subsidiary entities provide tax and business consulting services to their clients. Grant Thornton Advisors LLC and its subsidiary entities are not licensed CPA firms.
Tax professional standards statement
This content supports Grant Thornton Advisors LLC’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. It is not, and should not be construed as, accounting, legal, tax, or professional advice provided by Grant Thornton Advisors LLC. If you are interested in the topics presented herein, we encourage you to contact a Grant Thornton Advisors LLC tax professional. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal, tax, or professional advice provided by Grant Thornton Advisors LLC. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact a Grant Thornton Advisors LLC tax professional prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton Advisors LLC assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.
Grant Thornton Advisors LLC and its subsidiary entities are not licensed CPA firms.
More tax hot topics
No Results Found. Please search again using different keywords and/or filters.
Share with your network
Share