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Is not knowing you need to file a form 3520 for foreign

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gifts enough to establish reasonable...
Is not knowing you need to file a form 3520 for foreign gifts enough to establish reasonable cause? Plan to voluntarily disclose after finding out the requirement. I did my taxes myself on Turbo Tax, and it was my first time I ever filed taxes -- I don't think it asked me anything about receiving foreign gifts?) but not sure. I received 500K from overseas. However, I did not disclose an information form. I did not intentionally leave this part out. Had I knew about it, I would have filed immediately. Not willfully neglectful or trying to evade anything -- just simply did not know about it. Worried I would have to pay 5% penalty per month late, which is a significant amount of money.
Submitted: 4 months ago.Category: Tax
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Customer reply replied 4 months ago
Just unsure what exactly it would take to establish this reasonable cause to not have to pay penalties. And what the likelihood is for me to get out of this without having to pay up money I don't have.
Answered in 4 minutes by:
7/1/2017
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago
Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2,329
Experience: Certified Public Accountant
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Hi, my name is Mark. I will be happy to help you with your questions. How did you become aware of the filing requirement.

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Customer reply replied 4 months ago
Bank closed my accounts and I was trying to think back why it could be closed. Upon research, it turns out it could be because there were people sending large amounts of money and banks are usually risk adverse. Large sum of money = could look like criminal activity (which it was not..) anyway. So I decided to research about the only one thing I could think of - the gifts I received. I didn't think there would be any filing requirement bc I read that such gifts were not taxable. I did not know they had to be reported. I was thinking since they didn't need to be taxed, they probably didn't need to be filed or anything. But upon further research after taxes deadline, I found out that there was a filing requirement on the money inflow. However, this is a separate issue from my bank accounts being closed.
Customer reply replied 4 months ago
to answer your question, I did more research after I found out my bank accounts were closed thinking it could be linked to the money I received. Because there would be no other reason the bank closed my account, having been a member with them for 5 years.
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

I apologize I had to step away from the computer. Any deposit that is greater than $10,000 is reported to the government. This is exactly as you mentioned to track illegal activity. When did you receive the money? Did you receive more than $100,000 from a foreign individual?

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Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

Did you speak with any financial professionals? Do you have any background or education in business, accounting, or finance.

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Customer reply replied 4 months ago
I received money from foreign individual. The bank is not the issue I am asking about-- the money is all legal. It is from my wife's parents. Anyway -- the question I'm trying to ask is whether or not - not knowing about a filing requirement is enough to establish reasonable cause for not filing form 3520. Considering it is the first time I have ever filed a tax return, and having relied on turbo tax to do my taxes?
Customer reply replied 4 months ago
All 500K was from foreign individual. I received it during the 2016 tax year, in June. I was supposed to file form 3520 in April 15, but I'm late already. So I need to fill out the form now, but it will be late. Penalizable unless I can establish reasonable cause. Do I have reasonable cause?
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

I did not mean to give you the wrong impression. I was not questioning the legality, It was just an FYI that the banks are required to report individual transactions of greater than $10,000.

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Customer reply replied 4 months ago
In terms of tax law though, do I have enough to justify reasonable cause? I'm not sure how much is required to establish this so I don't have to pay the penalty. I intend to file the form late voluntarily.
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

Let me see what I can find. Usually reasonable cause would involve more. Please give me a few moments.

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Customer reply replied 4 months ago
I just feel like considering it is my first tax return, having filed through turbo tax, I didn't know better. I would have filed if I knew about it.
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

I would tend to agree with you. For reasonable cause for a delinquency penalty you need to show that you exercised ordinary business care and prudence and was nevertheless unable” to file the return or pay the tax, the taxpayer has reasonable cause and the penalty will not be assessed. The most important factor being is the extent of the taxpayer’s effort to assess the proper filing requirement.

The Internal Revenue Manual (IRM) discusses reasonable cause relief for failure to file international information returns and provides an overall standard as follows:

Reasonable cause applies to most, but not all, of the penalties. However, taxpayers who conduct business or transactions offshore or in foreign countries have a responsibility to exercise ordinary business care and prudence in determining their filing obligations and other requirements. It is not reasonable or prudent for taxpayers to have no knowledge of, or to solely rely on others for, the tax treatment of international transactions [IRM 20.1.9.1.1 (4) (October 24, 2013)].

This language sets a strict standard: business care and prudence is required, and a taxpayer cannot claim either lack of knowledge or exclusive reliance on professional advisers. This is close to the standard for filing income tax returns that the Supreme Court explained in Boyle v. U.S. [469 U.S. 241 (1985)]: “[O]ne does not have to be a tax expert to know that tax returns have fixed filing dates and that taxes must be paid when they are due.” The IRM therefore appears to take the position that U.S. taxpayers who conduct international business or transactions are expected to have the same knowledge of filing international information returns as of filing Form 1040.

http://www.kflaw.com/reasonable_cause_for_international_information_return_penalties_what_is_the_standard

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Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

Yes, you can claim lack of knowledge as a reasonable cause defense. You need to show the steps you took to find out the filing requirements and once you found out that you had a filing requirement you took the steps necessary to become compliant. They was no intent to not-file or avoid your filing requirement after all this is the first time you dealt with this current situation.

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Customer reply replied 4 months ago
What do you think is the chances that the IRS will in fact assess a penalty? or do you think my chances are pretty good considering the circumstances, that I will not be assessed a penalty?
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

Your cancer are pretty good that they would accept reasonable cause. You would just need to build your case. This was the first time that you received an international gift, you were not aware of your filing obligation at the time, once you became aware that you had a filing requirement you took the steps necessary to resolve the situation. The delay in filing was non-willful and due to lack of knowledge.

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Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

chances are pretty good.

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