Penalties for unreported foreign gifts and interests

Plain-English summary

The Chief Counsel advice addresses penalties for failing to report a large foreign gift on Form 3520. It states that the assessment period has not begun when a taxpayer has not filed the form, and that the IRS may assess a penalty of 5 percent, up to 25 percent, of the unreported gift under section 6039F. It also explains that if the failure to file Form 5471 was willful rather than due to reasonable cause, section 6501(c)(8) keeps the assessment period open for an adjustment involving unreported interest income.

Ruling snapshot

• Question: Can the IRS assess penalties and make an income adjustment when Forms 3520 and 5471 were not filed?
• Outcome: Advice given
• Key authorities: IRC §§ 6039F(c)(1)(B), 6501(c)(3), and 6501(c)(8)

Full text (IRS public release)

ID: CCA_2013090614055395
UILC: 6039F.00-00

Number: 201402010
Release Date: 1/10/2014
From:
Sent: Friday, September 06, 2013 2:05:53 PM
To:
Cc:
Bcc:
Subject: Request for assistance under 6039F and 6501

You asked us whether the Service can assess a penalty for the two tax years at issue
with respect to the taxpayers’ failure to file a Form 3520 under section 6039F. Under
section 6501(c)(3), the statute of limitations has not begun to run in the case where a
U.S. taxpayer has not filed a Form 3520 reporting the receipt of a large gift from a
foreign person, and pursuant to section 6039F(c)(1)(B), the Service may assess a 5%
penalty (up to 25%) on the amount of the unreported gift.

In addition, if the taxpayers' failure to file Form 5471 for the ------- tax year was due to
willful neglect and not due to reasonable cause, under section 6501(c)(8), the statute
would remain open for the Service to also make an adjustment for the unreported
interest income for that tax year.

Please let me know if you have any additional questions.

Best,

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