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20.1.9.1
(11-20-2007)
Overview
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International information return penalties are civil penalties assessed on a U.S. person for failure to timely file complete
and accurate international information returns required by specific Code sections.
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U.S. taxpayers are required to report their world wide income. International information returns provide information that
the IRS has no other method of securing. The information returns provide a vehicle for verifying that the correct income tax
is assessed.
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Many of the returns have been required since 1962 and the penalty provisions have been in place since 1984. Although this
IRM includes current law, penalties may be assessed for periods under prior law.
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Generally, the returns are required for entities or events that the taxpayer has "control"
over.
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Returns submitted that are not complete and accurate are considered as not having been filed.
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Some returns are considered unfiled if the taxpayer does not provide required information when requested and penalties apply
even if the required return has been submitted.
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Penalties may be assessed prior to the filing of the required information return or the submission of required information.
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U. S. persons frequently have multiple obligations for each year and multiple penalty assessments. Penalties apply to each
information return that was required to be filed for each year.
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For international return processing, see IRM 3.15.128 and IRM 3.15.129.
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The exhibits listed in the table provide the following information:
20.1.9.1.1
(11-20-2007)
Common Terms
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U. S. Person. Unless otherwise indicated, the term "U.S. person" includes individuals, corporations, partnerships, estates or trusts.
Penalties cannot be assessed on married taxpayers jointly but can be assessed on each person separately. See IRC section 7701(a)(30).
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Assessable Penalties. Penalties listed in this section, unless otherwise noted, are assessable penalties and are not covered by deficiency procedures
of IRC section 6211. For these penalties, there is no 30-day letter, no agreement form and no notice is required prior to
assessment. See Exhibit 20.1.9-3, Quick Guide for Reference Numbers to Process International Penalty Assessments, for a list
of reference numbers. The reference number identifies the applicable Code section and dictates the explanatory language in
the assessment notice.
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Statute of Limitations. Penalties that are not considered taxes generally have no statute of limitation for assessment.
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Reasonable Cause applies to most but not all of the penalties. Reasonable cause will be considered by the examiner per IRM 20.1.1 prior to
assessing the penalty. See Exhibit 20.1.9-5, Reasonable Cause Relief, for a quick reference. Specific information is listed
with the related penalty and Code sections.
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The fact that reasonable cause relief was granted to the related income tax return does not automatically provide relief for
the failure to timely file the information returns. Among the many considerations is the fact that the penalties for failure
to file the information returns are not limited to the first five months under IRC section 6651(a)(1) that the tax return
is delinquent.
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Appeal rights.
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Specific Powers of Attorney or Authorizations to Disclose Tax Information are required prior to discussing penalty issues with a person other than the person subject to the assessment or required
to file the returns.
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Information returns are generally required to be attached to the related income tax return. In addition, certain information returns must also
be separately filed with the IRS campus site identified in the instructions for such form. Any information return required
to be attached to the related income tax return is due on the due date of the income tax return, including extensions. Examiners
should focus on the requirement to attach the information returns to the related income tax return when determining whether
or not the required return has been filed timely. Form 3520 (MFT 68) and Form 3520-A (MFT 42) are processed to Master File,
and are not required to be attached to the income tax return.
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Civil Penalty cases are not controlled on AIMS. However, penalties assessed by Examination are associated with an examination on the taxpayer.
Use CFOL "Z"
to identify closed examinations.
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Campus examiners are authorized to assess penalties on late filed or incomplete information returns received at the Campus. Campus
employees can abate penalties asserted by Campus personnel.
Note:
All other abatements must be approved by the organizational unit that authorized the assessment (LMSB or SBSE Examination).
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The Examiner determines whether a taxpayer has failed to comply with the reporting/filing requirements, solicits any facts regarding reasonable
cause from the taxpayer, and decides if reasonable cause applies.
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If reasonable cause does not exist, or exists for only a portion of the time, the examiner then computes the amount of the
penalty to be assessed.
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The penalties are assessed by Examination on Form 8278 with a Form 886-A attached.
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Penalty Tax Adjustments. Some of the penalty Code sections include penalty adjustments to income tax or penalties that are based on the amount of
income tax. Penalties based on the amount of income tax, income tax deficiency, adjustments to taxable income, tax credits
or income tax computations are return related penalties and are covered by deficiency procedures. Return related penalties
must be included in an examination report. These penalties are noted in Exhibit 20.1.9-4 for information purposes.
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Related Statute for Assessment. IRC section 6501(c)(8) extends the statute for assessment on the related income tax return regarding items related to the
information required to be reported until 3 years after the information required by IRC sections 6038, 6038A, 6038B, 6046,
6046A and 6048 is furnished to the Secretary (effective for returns due after 8/5/1997, except for information required by
IRC section 6038B which is effective for returns due after 12/31/1984). Examiners should be aware that filing or failing to
file information returns may affect the statute for assessment on the related income tax returns.
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Notice. A notice and demand for payment is a legally due and payable assessment (bill) mailed to the taxpayer.
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Notice lettersare pre-assessment requests for returns (or complete and accurate return information) sent by certified mail to the taxpayer.
20.1.9.1.2
(11-20-2007)
Other Penalties
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U.S. and foreign taxpayers are subject to criminal penalties for willful failure to file a return (IRC section 7203) or filing
a false or fraudulent return (IRC sections 7206 and 7207).
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IRC section 6662(e), Substantial Valuation Misstatement, and IRC section 6662(h), Increase in Penalty in Case of Gross Valuation
Misstatements, address the coordination of IRC section 482 transfer price adjustments on returns ending after November 5,
1990.
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The following reporting/filing requirements are subject to Failure to Deposit penalties as discussed in IRM 20.1.4:
20.1.9.1.3
(11-20-2007)
31 U.S.C. 5321 -- TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR)
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Generally, a U.S. person having one or more foreign accounts with maximum balances totaling over $10,000 for any calendar
year is required to maintain records and file Form TD F 90-22.1 with the Internal Revenue Service by June 30th of the following
year.
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A penalty applies—
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Under 31 U.S.C. 5321(a)(5)(B) for any non-willful violation of the recordkeeping and filing requirements under 31 U.S.C. 5314,
occurring after October 22, 2004,
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Under 31 U.S.C. 5321(a)(5)(C) for any willful violations of the recordkeeping and filing requirements under 31 U.S.C. 5314,
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Under 31 U.S.C. 5314, 5321(a)(6)(A) for negligently failing to meet the filing and recordkeeping requirements for financial
institutions or non-financial trades or businesses under 31 U.S.C. 5314 and 31 C.F.R. 103.24, or 31 C.F.R. 103.32, and
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Under 5321(a)(6)(B) for a pattern of negligent violations of any provision of 31 U.S.C. 5311-5332 .
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See IRM 4.26.16 for FBAR penalty computation rules and mitigation guidelines. See IRM 4.26.17 for FBAR penalty procedures.
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See 31 U.S.C. 5321(b) for the statute of limitations on assessment and collection.
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