IRS Accepts AICPA’s Suggestions Related to Form 3520

July 30, 2014

The Internal Revenue Service (IRS) recently adopted several changes to Form 3520 recommended by the American Institute of CPAs (AICPA), as well as processing procedures related to Form 3520, in order to help prevent taxpayers who file the foreign trust reporting form from receiving incorrect letters and penalty assessments.

IRS officials said in a July 2 telephone call with AICPA members and staff that they had adopted some of the suggestions made by the AICPA in its August 28, 2012 letter,  which alerted the Service to a series of erroneous letters to taxpayers who had filed Form 3520.  IRS officials acknowledged on the call that AICPA made them aware of issues related to a widespread problem affecting numerous taxpayers.

The AICPA letter described six specific errors the IRS letters claimed taxpayers had made, including filing Form 3520,  Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, late when the forms were in fact filed on time. 

The IRS staff thanked the AICPA and its members for keeping them informed about issues being experienced by taxpayers and tax preparers and encouraged further dialogue as any new issues arise.

New Problem Flagged

During the call, the AICPA told the IRS that some foreign trusts are now receiving incorrect letters regarding Form 4868 extensions filed with the IRS’s Austin Service Center.  The incorrect IRS letters tell taxpayers that because they are not individuals they should file Form 7004; however, Form 4868 is the correct extension form for Form 3520.  The IRS is following up to correct the problem.

For more information about the AICPA’s advocacy regarding foreign trusts, see the foreign trust documents web page.