Taxes
AICPA Asks IRS to Address Issues with Forms 3520 and 3520-A
In comment letters sent to the IRS, the AICPA requested improvements be made to two tax returns pertaining to foreign trusts.
Aug. 28, 2023
The American Institute of CPAs (AICPA) submitted comment letters to the IRS on Aug. 14 requesting improvements be made to two tax returns pertaining to foreign trusts.
The AICPA sent recommendations to the IRS on changes to 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 by the AICPA to the IRS Independent Office of Appeals suggesting penalty abatements relating to Form 3520 and Form 3520-A based on reasonable cause.
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 employer identification 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 the other letter regarding sharing Appeals Form 3520 and Form 3520-A reasonable cause determinations with IRS campus employees, 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 recommended the following actions:
- Appeals provide Appeals Case Memoranda (ACMs) where it 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 IRS 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,” Eileen Sherr, director of AICPA Tax Policy and Advocacy, said in a press release. “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.”