Automatic abatement of late filing penalties under Notice 2022-36

Aug 31, 2022

Good afternoon this is Olivier Wagner with 1040 Abroad here to discuss the basics of a recent notice that was published by the internal revenue service to help taxpayers who have received penalties or have not yet filed certain tax forms regarding tax year 2019 and 2020.

The nice thing is it includes certain but not all international information return forms and penalties.

Notice 2022-36 refers specifically to late filing penalties. Essentially taxpayers who have filed a form late, be it a tax return, form 5471, or form 3520 for tax years 2019 and 2020, now have up to September 30, 2022, to file the forms so they can avoid penalties or have penalties automatically abated.

One very important thing to keep in mind is that it involves specific forms but not all the forms and we’ll get into that in a minute but some of the more common forms you’ll find where people get penalized pretty heavily are forms 3520 &  3520-A and form 5471.

Click here for a more comprehensive list of the forms covered.

Again it only includes 2019 and 2020. What are the key forms that are included:
– Form 3520 your foreign gift: most common situation U.S. person receives a gift from a foreign person that gift or aggregate total of gifts from that individual in the same year exceeds a hundred thousand dollars. If they filed form 3520 more than 5 months late, they get a 25 penalty.
– Form 3520-A is for foreign trusts: when someone is the owner or a beneficiary of a trust they can get very high penalties.
– Form 5471 which is used to report interest in foreign corporations. This is infinitely more complicated for taxpayers especially with the GILTI rules and Subpart F income. The penalty starts with a hefty $10,000.

Now, notice 2022-36 covers two years (2019 & 2020). So if you only face a late filing penalty for those 2 years, it is a great opportunity to file those returns by September 30, 2022 if you have not already. But if you have multiple years (beyond 2019 & 2020), it would be worthwhile to consider the Streamlined Foreign Offshore procedure.

Significant omissions from notice 2022-36 are the FBAR and form 8938. While the IRS stated that they will abate FBAR penalties if the corresponding income is correctly reported on the tax returns, such a policy

Do not hesitate to contact us for further guidance.

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