Washington, D.C. (August 24, 2023) – The American Institute of CPAs (AICPA) submitted recommendations to the Internal Revenue Service (IRS) on improvements to the IRS Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, and Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner, and instructions. A separate letter was also submitted providing additional recommendations regarding sharing Appeals Form 3520 and Form 3520-A reasonable cause determinations with the Campus.
Following discussions with the IRS Office of Servicewide Penalties on these forms and instructions, the AICPA developed several recommendations to help taxpayers and practitioners understand the correct reporting and assist with compliance.
Among the recommendations, the AICPA requested that the IRS update, add to and clarify Form 3520 and Form 3520-A instructions and allow for e-filing of both forms, clarification of the need for EIN numbers and inclusion of an exemption from both forms for foreign pensions where deferral of tax on earnings is available under a tax treaty.
In a second letter regarding sharing Appeals Form 3520 and Form 3520-A reasonable cause determinations with the Campus, the AICPA submitted recommendations aimed at better educating Campus personnel reviewing these specific issues with the understanding that resolving cases expeditiously will save taxpayers the campus time and resources.
The AICPA recommends the following actions:
The Independent Office of Appeals (Appeals) provide Appeals Case Memoranda (ACMs) where Appeals fully abates penalties relating to Form 3520 and Form 3520-A based on reasonable cause to Campus personnel handling initial reasonable cause requests.
If Appeals decides that sharing ACMs is not possible or feasible, the AICPA recommends that Appeals coordinate with the Office of Servicewide Penalties to provide Campus personnel with a summary of Form 3520 and Form 3520-A cases where Appeals fully conceded the penalty based on reasonable cause, including the factors that Appeals relied upon in each case to make these concessions.
“Providing real-world feedback to campus personnel will assist them in developing more experience in properly evaluating reasonable cause abatement requests,” said Eileen Sherr, Director, AICPA Tax Policy and Advocacy. “Ultimately, this can result in a more accurate application of the reasonable cause standard, reducing the workload for appeals and reduce costs for taxpayers contesting systemic penalty assessments.”
Earlier this year, the AICPA submitted additional comments pertaining to Forms 3520 and 3520-A including:
May 9, 2023 – AICPA Comments on 2023-2024 IRS Priority Guidance Plan (pages 29-33)
February 13, 2023 - AICPA Comments on OMB Number: 1545-0159 on Form 3520 and Form 3520-A
February 7, 2023 - 2023 AICPA Compendium of Tax Legislative Proposals – Simplification and Technical Proposals (pages 46-50 and 107-113)
About the American Institute of CPAs
The American Institute of CPAs® (AICPA®) is the world’s largest member association representing the CPA profession, with more than 421,000 members in the United States and worldwide, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education, and consulting. AICPA sets ethical standards for its members and U.S. auditing standards for private companies, not-for-profit organizations, and federal, state and local governments. It develops and grades the Uniform CPA Examination, offers specialized credentials, builds the pipeline of future talent and drives continuing education to advance the vitality, relevance and quality of the profession.
###
Contact: Veronica L. Vera
202-434-9215
Veronica.Vera@aicpa-cima.com