Part 8. Appeals

Chapter 11. Penalties Worked in Appeals

Section 5. International Penalties

8.11.5 International Penalties

Manual Transmittal

December 23, 2024

Purpose

(1) This transmits revised IRM 8.11.5, Penalties Worked in Appeals, International Penalties.

Background

During Fiscal Year 2014, the Appeals International Penalty Internal Revenue Manual (IRM) was reorganized to incorporate all post-assessed International penalties worked in Appeals. In this revision of IRM 8.11.5, the format, structure and content were significantly rearranged and updated to provide a comprehensive resource of the International penalties process.

Material Changes

(1) Added new IRM 8.11.5.1, Program Scope and Objectives, and related sections containing internal control information required by IRM 1.11.2.2.4, Address Management and Internal Controls.

(2) Based on the addition of internal controls, the remaining sections have been renumbered.

(3) Revised IRM to incorporate IG AP-08-1222-0018, Appeals Procedures for Considering First Time Abatement (FTA) Penalty Relief on International Penalties. See IRM 8.11.5.2, 8.11.5.3.3, and 8.11.5.4.3.

(4) Added a reference to IRM 25.30.2, Service Level Agreement between the IRS Independent Office of Appeals and the Taxpayer Advocate Service. See IRM 8.11.6.1.5, Related Resources.

(5) IRM 8.11.5 is revised to incorporate IG AP-08-0924-0019, Updated interim guidance on Appeals Reporting Data Needs (ARDN).

Effect on Other Documents

This IRM supersedes IRM 8.11.5 dated December 18, 2015.. This IRM incorporates Interim Guidance Memorandums AP-08-0924-0019, Updated interim guidance on Appeals Reporting Data Needs (ARDN), dated 09-03-2024, and AP-08-1222-0018, Appeals Procedures for Considering First Time Abatement (FTA) Penalty Relief on International Penalties, dated 12-07-2022.

Audience

Appeals

Effective Date

(12-23-2024)


Patrick E. McGuire
Acting Director, Operations Support

8.11.5.1 (12-23-2024)

Program Scope and Objectives

  1. Purpose: This IRM section provides the IRS Independent Office of Appeals (Appeals) with procedures for controlling and working civil penalty cases related to international information returns.

  2. Audience: The primary users of this IRM section are Appeals Technical Employees (ATEs) and Appeals Team Managers (ATMs).

  3. Policy Owner: Policy, Planning, Quality and Analysis (PPQ&A) is under the Director of Operations Support (OS).

  4. Program Owner: Appeals Policy is the program office responsible for providing technical and procedural guidance to the Appeals organization, and is under the Director, PPQ&A.

  5. Contact Information: Appeals employees should follow established procedures on How to Contact an Analyst. Other employees should contact the Product Content Owner shown on the Product Catalog Information page for this IRM.

8.11.5.1.1 (12-23-2024)

Background

  1. This IRM adheres to Penalty Policy Statement P-20-1, which addresses fair and equitable implementation and application of penalty provisions to most efficiently encourage voluntary compliance, and requires all Service functions to develop procedures that promote:

    1. Consistency in the application of penalties compared to similar cases;

    2. Fair and impartial analysis of the facts in each case; and

    3. The proper application of the law to the facts of the case.

  2. As stated in IRC 7803(e)(3), the Appeals mission is to resolve Federal tax controversies without litigation on a basis that is fair and impartial to both the Government and the taxpayer, promotes a consistent application and interpretation of, and voluntary compliance with, the Federal tax laws, and enhances public confidence in the integrity and efficiency of the IRS. Appeals accomplishes its mission by considering protested and Tax Court cases and negotiating settlements in a manner which ensures Appeals employees act in accord with the Taxpayer Bill of Rights (TBOR) in every interaction with taxpayers.

8.11.5.1.2 (12-23-2024)

Authority

  1. IRC Subtitle F, Chapters 61 and 68, contain most of the international civil penalty provisions.

  2. IRM 1.2.1.12.1, Policy Statement 20-1 (formerly P-1-18), Penalties are used to enhance voluntary compliance, sets forth the Service’s position regarding penalties.

  3. IRM 20.1.9, International Penalties, provides servicewide instructions for working international penalty cases.

8.11.5.1.3 (12-23-2024)

Responsibilities

  1. The Director, OS is the executive responsible for Appeals' policy and procedural guidance.

  2. The Director, PPQ&A is responsible for program oversight.

  3. The policy analyst shown on the Product Catalog page as the "Content POC (Point of Contact)" is the assigned author of this IRM.

8.11.5.1.4 (12-23-2024)

Program Reports

  1. PPQ&A provides trends and data analyses and detailed summary reports for Appeals.

8.11.5.1.5 (12-23-2024)

Common Terms and Acronyms

  1. See IRM Exhibit 8.1.1-1, Common Terms Used in Appeals, for common terms and definitions used in IRM Part 8.

  2. The table below is a list of additional terms and acronyms used in this IRM.

    Acronym Definition
    BMF Business Master File
    CDP Collection Due Process
    CR-NR An automatic entry in ACDS, which the ATE validates, that stands for “Case Received-New Receipt.”
    EH Equivalent Hearing
    IDRS Integrated Data Retrieval System
    IMF Individual Master File
    MFT Master File Tax
    PENAP Penalty appeal
    PRN Penalty Reference Number
    R&C Review and Concurrence
    TC Transaction Code
    WUNO Work Unit Number

8.11.5.1.6 (12-23-2024)

Related Resources

  1. This IRM is the primary source of guidance on this program.

  2. IRM 8.11.4, Penalty Appeals (PENAP).

  3. IRM 20.1.9, International Penalties, and its related sections.

  4. The Taxpayer Bill of Rights (TBOR) lists rights that already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see Taxpayer Bill of Rights.

  5. In accordance with IRM 25.30.2.3, Statement of Commitment, Appeals will work cooperatively with the Taxpayer Advocate Service (TAS) to enhance the taxpayer experience. For more information, see IRM 25.30.2, Service Level Agreement between the IRS Independent Office of Appeals and the Taxpayer Advocate Service.

8.11.5.2 (12-23-2024)

Introduction of International Penalties

  1. Overview - International penalties generally have post-assessment pre-payment appeal rights. International penalties include the IRC 6038 series located in Chapter 61 – Subchapter A –Part III of the IRC; and, the IRC 6677 and IRC 6679 series located in Chapter 68 – Subchapter B - Assessable Penalties. The prior IRS policy was to allow a post-assessment and pre-payment appeal for only Chapter 68 International penalties. The IRS expanded post-assessment pre-payment Appeals consideration to Chapter 61 International penalties in 2010.

    Note:

    FBAR penalties are not considered International penalties. See IRM 4.26.16, Report of Foreign Bank and Financial Accounts (FBAR), IRM 4.26.17, Report of Foreign Bank and Financial Accounts (FBAR) Procedures, and IRM 8.11.6, Penalties Worked in Appeals, FBAR Penalties, for additional information.

  2. Purpose - This IRM section provides procedural guidance for post-assessed pre-payment International penalties in Appeals.

    Note:

    Most International Penalties are not subject to deficiency procedures and must be assessed before coming to Appeals. See IRM Exhibit 20.1.9-4, International Penalties Subject to or Not Subject to Deficiency Procedures, for exceptions.

  3. The most commonly appealed International penalties include:

    • IRC 6038(b) – U.S. person with interest in: foreign corporation (FC), foreign partnership (FP), and FC or FP with foreign disregarded entity. Penalty for failure to furnish information. Form 5471, Form 8865. See IRM 8.11.5.2 for guidance.

    • IRC 6038A(d)– Information reporting with respect to 25 percent foreign owned U.S. corporations. Form 5472. See IRM 8.11.5.3 for guidance.

    • IRC 6038C(c)– Information reporting with respect to foreign corporations engaged in U.S. Business. Form 5472. See IRM 8.11.5.5 for guidance.

    • IRC 6038D(d) – Failure to provide information with respect to foreign financial assets. Form 8938. See IRM 8.11.5.13 for FATCA guidance.

    • IRC 6677(a) – U.S. person who creates a foreign trust, transfers property to a foreign trust or receives a distribution from a foreign trust. Form 3520. See IRM 8.11.5.8 for guidance.

    • IRC 6677(b) – U.S. owner of a foreign trust. Form 3520-A. See IRM 8.11.5.9 for guidance.

    Note:

    For International penalties eligible for accelerated appeals consideration see IRM 8.11.5.14, Accelerated Appeals Procedures (AAP).

  4. This IRM Section is for post assessed international penalties and is not applicable to International Penalties subject to Deficiency Procedures. The following international penalties are subject to deficiency procedures. See IRM 20.1.1.4.2, Deficiency Procedures, for procedures relating to those penalties subject to deficiency procedures.

    • IRC 6038(c) – Penalty of Reducing Foreign Tax Credit Plus Continuation Penalty

    • IRC 6038A(e) – Noncompliance Penalty for Failure to Authorize an Agent or Failure to Produce Records

    • IRC 6038C(d) – Noncompliance Penalty for Foreign Related Party Failing to Authorize the Reporting Corporation to Act as its Limited Agent

    • IRC 6039F(c) – Taxability of Gift from Foreign Persons

    • IRC 6686 – Information Returns for Former FSCs

    • IRC 6688 – Reporting for Residents of U.S. Possessions

  5. General Information – For general information on International penalties worked by Compliance see IRM 20.1.9, Penalty Handbook, International Penalties.

  6. Settlement Authority - The authority to settle appeals of assessed penalties is consistent with the authority to settle all other issues in Appeals. Settlement authority has not been re-delegated to Appeals Officers for International penalties.

  7. Premature Referrals - An International penalty must be assessed before routing the case to Appeals. If the penalty is not assessed, the Appeals Technical Employee (ATE) will close the case and return it to the originating function as a premature referral.

    Note:

    IRM 20.1.9.2 (20) and IRC 6751 requires Managers approve the International penalty case control, sign notice letters, and approve the International penalty by signing Form 8278 prior to closing the penalty case file from Examination. Automatically assessed penalties from Service Centers will not include Form 8278 as they are excepted from approval requirement per IRC §6751(b)(2).

  8. Related Case Files – A case may include multiple case files: penalty case files and related income tax case files. Each penalty and income tax case file will be assigned a separate work unit number and may be routed separately to Appeals. All related case files should be consolidated under one Appeals Officer, International Specialist.

  9. Collection Activity - While the case is in Appeals, it’s the taxpayer’s responsibility to communicate with the Collection function about the status of their case in Appeals.

    Note:

    The Appeals Officer will assist a taxpayer in providing a collection contact person if the Taxpayer receives collection notices, and a collection employee has not been assigned to the Taxpayer’s case.

  10. Penalty Appeal (PENAP) procedures generally apply to assessed penalties. Refer to IRM 8.11.4, Penalty Appeals (PENAP) for additional information.

  11. Form 13381, Technical Guidance Referrals - During the preliminary review, the ATE checks the Domestic & International Issue Locator for a list of International penalties that are designated as an Appeals Coordinated Issue (ACI) or an Emerging Issue. It is the responsibility of the ATE to prepare and forward a referral, through their ATM, to Specialty Operations on Form 13381 upon receipt of the case.

    Note:

    See IRM 8.7.3.4.2, Review and Concurrence - Appeals Officer's Responsibility, for procedures.

  12. Penalty Consideration - Appeals considers applicable statutory, regulatory, and judicial guidance relating to the specific penalty. Appeals may also consider the "hazards of litigation" when resolving International penalty cases. Appeals must clearly document the reason for a penalty abatement in an Appeals Case Memorandum. The Appeals Case Memorandum should document the facts and circumstances including clear justification for partial abatement and the specific hazards of litigation supporting abatement of the penalty.

    Note:

    The First Time Abatement (FTA) administrative waiver is generally not applicable to International Penalties addressed in IRM 8.11.5. However, see the exceptions noted in IRM 8.11.5.3.3 and IRM 8.11.5.4.3 for systemically assessed penalties on Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, and Form 5472, Information Return of a Foreign Owned Corporation, respectively.

  13. Reasonable Cause – Reasonable cause provisions are evaluated in conjunction with the guidelines, principles, and evaluating factors identified in IRM 20.1.1.3.2, Introduction and Penalty Relief, as well as, the applicable IRC sections, Treasury regulations, and judicial guidance. See the Exhibit in IRM 20.1.9-5, Reasonable Cause Relief, for a listing of penalties that qualify for reasonable cause relief.

    Note:

    The 2014 Offshore Voluntary Disclosure Initiative (OVDI) removed former FAQ 18 and replaced it with a reasonable cause requirement for penalty relief consideration.

  14. Acronyms - Generally, definitions of terms used in the Manual are with the material where the term is discussed. See the Exhibit in IRM 8.1.1-1, Common Terms Used in Appeals, for a list and the definitions of common terms used in Appeals.

  15. New Receipt and Closing Procedures for CDP – For any penalties referenced in IRM 8.11.5 that come to Appeals in Collection Due Process, the ATE should refer to IRM 8.22.8, Liability Issues and Relief from Liability, for liability challenges and guidance.

8.11.5.3 (12-18-2015)

IRC 6038 Information Reporting With Respect to Foreign Corporations and Partnerships (Form 5471)

  1. IRC 6038 requires U.S. persons to file certain information returns depending on their interests in, control over, transfers to or distributions from foreign corporations and partnerships.

  2. IRC 6038(b) imposes a monetary penalty for failure to furnish information with respect to certain foreign corporations and partnerships. See IRM 20.1.9.3, IRC 6038 – Information Reporting With Respect to Foreign Corporations and Partnerships, for additional information.

  3. Per IRC 6038(b):

    1. Initial Penalty is $10,000 per form per year for a failure to file a Form 5471 or for a form that is filed but does not show the information required to be reported. Penalty Reference Number (PRN) is 623.

    2. Continuation Penalty is assessed if the failure continues for more than 90 days after notification by the Service, $10,000 for each 30-day period (or fraction thereof) that the failure continues. The PRN is 619.

    3. Maximum additional penalty is $50,000.

    4. Total penalty can be $60,000 per form.

  4. Appeals Rights - IRC 6038 is an International penalty with post-assessed pre-payment penalty appeal rights. See IRM 20.1.9.1.1(5), Appeal Rights.

8.11.5.3.1 (12-18-2015)

Reporting and Filing Requirements for IRC 6038

  1. See IRM 20.1.9.3.1, Reporting and Filing Requirements, for detailed procedures on reporting and filing requirements.

  2. Failure to File information with respect to a U.S. person with interest in:

    1. Foreign Corporation (FC), Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, is used by certain U.S. citizens and residents who are officers, directors, or shareholders in certain foreign corporations to satisfy the reporting requirements of IRC 6038 and IRC 6046, and the related regulations. Generally, all U.S. persons are described in Categories of Filers and depending on the category of filer must complete the schedules, statements, and/or other information requested. Form 5471 provides instructions and charts for the Filing Requirements for Categories of Filers.

      Note:

      The Form 5471 must be attached to the person’s timely filed (including extensions) income tax return. See IRC 6046(d) and Treas. Reg. 1.6046-1(j)(1) for additional information.

    2. Foreign Partnership (FP), Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, is used to report the information required under IRC 6038 (reporting with respect to controlled foreign partnerships), IRC 6038B (reporting of transfers to foreign partnerships), or IRC 6046A (reporting of acquisitions, dispositions, and changes in foreign partnership interests). A U.S. person qualifying under one or more of the Categories of Filers must complete and file this form. Form 8865, Filing Requirements for Categories of Filers, provides instructions and charts.
      i) The due date is the date of the U.S. Person’s income tax return, including extensions. It is filed as an attachment to the Income Tax Return.

    3. FC or FP as Disregarded Entity (DE), Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities, is required for each Foreign DE. An FDE is a wholly owned foreign eligible entity that either defaults into disregarded entity status under Treasury Regulation 301.7701-3(b) or becomes one by election under Treasury Regulation 301.7701-3(c).

      i. A US person must file a Form 8858 with respect to an FDE if the US person:

      a. Directly owns the FDE;
      b. Is a Category 4 or 5 filer of Form 5471 with respect to a controlled foreign corporation (CFC) that is the tax owner of an FDE; or
      c. Is a Category 1 or 2 filer of Form 8865 with respect to a controlled foreign partnership (CFP) that is the tax owner of an FDE.

      ii. The due date is the date of the filer’s U.S. income tax or information return, including extensions. It is filed as an attachment to:

      a. Form 1120 if first tier.
      b. Form 5471 if owned by a CFC.
      c. Form 8865 if owned by a CFP.
      d. Form 1040 if owned by an individual.
      e. Form 1065 if owned by a partnership.
      f. Form 1120S if owned by an S corporation.
      g. Form 990 if owned by an exempt organization.

8.11.5.3.2 (12-18-2015)

New Receipt Procedures for Appeals Technical Employees

  1. Upon receipt of the case, the ATE must follow the procedures outlined in IRM 8.11.4.1.4, Assignment of PENAP Cases and IRM 8.11.4.1.5, New Receipt Procedures for Appeals Technical Employees.

  2. There may be 2 or more related case files. For example, a failure to file Form 3520 penalty case file, a FBAR penalty case file, and a related income tax case file. Each case file will be a separate work unit number and may come separately or all together to Appeals.

  3. Verify the penalty was assessed on IDRS on either MFT 13 (Corporation, Partnership, Trust) or 55 (Individual), Transaction Code (TC) 240, with the appropriate Penalty Reference Number (PRN).

    1. Cases from Examination
      i. Initial penalty with a PRN 623
      ii Continuation penalty with a PRN 619

    2. Cases from Service Center.
      If filed with Form 1120 then:
      i. Initial penalty with a PRN 623 for 2009
      ii. Initial penalty with a PRN 599 for 2010 and subsequent years
      iii. No continuation penalty

      If filed with Form 1065 then:
      i. Initial penalty with a PRN 712
      ii. No continuation penalty

  4. For case files coming from Examination, match the penalty assessed to the Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

    Caution:

    If the penalty is not assessed, the ATE will close the case and return it to the originating function as a premature referral.

8.11.5.3.3 (12-23-2024)

Penalty Relief

  1. Reasonable Cause relief is available for IRC 6038.

    Caution:

    Reasonable cause does not apply to the continuation penalty. See IRC 6038(c)(4)(B).

  2. IRC 6038 does not define reasonable cause. For reasonable cause considerations, see IRM 20.1.1.3.2, and regulations (e.g. Treas. Reg. 301.6651-1(c)).

  3. Taxpayers are required to file complete and accurate information on Form 5471. However, Treas. Reg. 1.6038-2(k)(3)(ii), provides a reasonable cause exception if the US filer has substantially complied with its IRC 6038 reporting requirements. Treasury Regulation 1.6038-3k(4) provides the rules for the reasonable cause exception for Controlled Foreign Partnership filers.

  4. First Time Abate - FTA penalty relief provisions generally do not apply to event-based filing requirements. However, see the exception in IRM 20.1.9.3.5(3)(b), Reasonable Cause, for the potential applicability of FTA relief to certain systemically assessed penalties on Form 5471.

8.11.5.3.4 (12-18-2015)

Closing Procedures

  1. Refer to IRM 8.11.4.1.7, Closing Actions for Appeals Technical Employees, for information on closing procedures for ATEs.

  2. Closing Form - Prepare Form 5402 and ACM outlining the settlement and summary of the case resolution

    1. Use a separate line for each penalty for each year.

    2. Add the appropriate PRN for each penalty for each year.

8.11.5.4 (12-18-2015)

IRC 6038A Information Reporting with Respect to Certain Foreign-Owned Corporations (Form 5472)

  1. IRC 6038A(d) provides a penalty for certain foreign-owned domestic corporations failing to report required information or failing to maintain records.

  2. See IRM 20.1.8.5 IRC 6038A(d) – Information Reporting for Certain Foreign-Owned Corporations, for additional information.

  3. Appeal Rights - IRC 6038A(d)(2) is an International penalty and has post-assessed pre-payment penalty appeal rights. See IRM 20.1.9.1.1(5), Appeal Rights.

8.11.5.4.1 (12-18-2015)

Reporting and Filing Requirements

  1. Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Reporting corporations use Form 5472 to provide required information under IRC 6038A and IRC 6038C for reportable transactions that occur during the tax year with a foreign or domestic related party.

8.11.5.4.2 (12-18-2015)

New Receipt Procedures for Appeals Technical Employees

  1. Upon receipt of the case, the ATE must follow the procedures outlined in IRM 8.11.4.1.4, Assignment of PENAP Cases and IRM 8.11.4.1.5, New Receipt Procedures for Appeals Technical Employees.

  2. Verify the penalty was assessed on IDRS on MFT 13, Transaction Code (TC) 240, with the appropriate Penalty Reference Number (PRN).

    Source of Case Penalty Reference Number (PRN)
    Examination

    1. Initial penalty with a PRN 625

    2. Continuation penalty with a PRN 701
    Service Center

    1. Initial penalty with a PRN 711

    2. No continuation penalty

  3. For case files coming from Examination, match the penalty assessed to the Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

    Caution:

    If the penalty is not assessed, the ATE will close the case and return it to the originating function as a premature referral.

8.11.5.4.3 (12-23-2024)

Penalty Relief

  1. Reasonable Cause applies to this penalty. See IRC 6038A(d)(3), Treas. Reg. 1.6038A-4(b) and IRM 20.1.1.3.2, Reasonable Cause.

    Caution:

    Reasonable cause does not apply to the continuation penalty. See IRC 6038A(d)(3).

  2. First Time Abate - FTA penalty relief provisions generally do not apply to event-based filing requirements. However, see the exception in IRM 20.1.9.5.5(3)(b), Reasonable Cause, for the potential applicability of FTA relief to certain systemically assessed penalties on Form 5472.

8.11.5.4.4 (12-18-2015)

Closing Procedures

  1. Refer to IRM 8.11.4.1.7, Closing Actions for Appeals Technical Employees, for information on closing procedures for ATEs.

  2. Closing Form - Prepare Form 5402 and ACM outlining the settlement and summary of the case resolution.

    1. Use a separate line for each penalty for each year.

    2. Add the appropriate PRN for each penalty for each year.

8.11.5.5 (12-18-2015)

IRC 6038B Notice of Certain Transfers to Foreign Persons

  1. IRC 6038B(c) provides a penalty for failure to furnish information with respect to certain transfers of property by a U.S. person to certain foreign persons.

  2. See IRM 20.1.9.7, IRC 6038B(c) – Failure to File Notice of Transfers to Foreign Persons, for additional information on penalty.

  3. Appeal Rights - IRC 6038B(c) is an International penalty and has post-assessed pre-payment penalty appeal rights. See IRM 20.1.9.1.1(5), Appeal Rights.

8.11.5.5.1 (12-18-2015)

Reporting and Filing Requirements

  1. See IRM 20.1.9.7.1, Reporting and Filing Requirements, for information on reporting and filing requirements.

  2. The following information returns are applicable to this section:

    1. Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation. This form is used to report certain transfers of tangible or intangible property to a foreign corporation required by IRC 6038B.

    2. Form 8865, Schedule O, Transfer of Property to Foreign Partnership (under Section 6038B). This schedule is used to report the information required under IRC 6038B (reporting of transfers to foreign partnerships).

8.11.5.5.2 (12-18-2015)

New Receipt Procedures for Appeals Technical Employees

  1. Upon receipt of the case, the ATE must follow the procedures outlined in IRM 8.11.4.1.4, Assignment of PENAP Cases and IRM 8.11.4.1.5, New Receipt Procedures for Appeals Technical Employees.

  2. Verify the penalty was assessed on IDRS on MFT 13 for BMF, or MFT 55 for IMF, Transaction Code (TC) 240, with PRN 676.

  3. For case files coming from Examination, match the penalty assessed to the Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

    Caution:

    If the penalty is not assessed, the ATE will close the case and return it to the originating function as a premature referral.

8.11.5.5.3 (12-18-2015)

Penalty Relief

  1. Reasonable Cause: IRC 6038B(c)(2) provides that no penalty shall apply to any failure if the U.S. person shows such failure is due to reasonable cause and not to willful neglect. See IRM 20.1.1.3.2, Reasonable Cause, for reasonable cause provisions.

8.11.5.5.4 (12-18-2015)

Closing Procedures

  1. Refer to IRM 8.11.4.1.7, Closing Actions for Appeals Technical Employees, for information on closing procedures for ATEs.

  2. Closing Form - Prepare Form 5402 and ACM outlining the settlement and summary of the case resolution.

    1. Use a separate line for each penalty for each year.

    2. Add the appropriate PRN for each penalty for each year.

8.11.5.6 (12-18-2015)

IRC 6038C – Information with Respect to Foreign Corporations Engaged in U.S. Business

  1. IRC 6038C provides a penalty for the failure to file Form 5472. Refer to Treas. Reg. 1.6038A-1(c)(1) and IRM 20.1.9.8, IRC 6038C – Information with Respect to Foreign Corporations Engaged in U.S. Business, for additional information on the penalty.

  2. Appeal Rights - IRC 6038C is an International penalty and has post-assessed pre-payment penalty appeal rights. See IRM 20.1.9.1.1(5), Appeal Rights.

8.11.5.6.1 (12-18-2015)

Reporting and Filing Requirements

  1. Form 5472, Information Return of a 25% Foreign-owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, is used to provide information required under IRC 6038A and IRC 6038C when reportable transactions occur, during the tax year of a reporting corporation, with a related party. Refer to IRM 20.1.9.8.1, Reporting and Filing Requirements, for additional information concerning reporting and filing requirements.

8.11.5.6.2 (12-18-2015)

New Receipt Procedures for Appeals Technical Employees

  1. Upon receipt of the case, the ATE must follow the procedures outlined in IRM 8.11.4.1.4, Assignment of PENAP Cases and IRM 8.11.4.1.5, New Receipt Procedures for Appeals Technical Employees.

  2. Verify the penalty was assessed on IDRS on MFT 13, Transaction Code (TC) 240, with the appropriate Penalty Reference Number (PRN).

    1. Initial penalty with a PRN 603

    2. Continuation penalty with a PRN 705

  3. For case files coming from Examination, match the penalty assessed to the Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

    Caution:

    If the penalty is not assessed, the ATE will close the case and return it to the originating function as a premature referral.

8.11.5.6.3 (12-18-2015)

Penalty Relief

  1. Reasonable Cause relief is available for IRC 6038C penalty if certain criteria are met. See Treas. Reg. 1.6038A-4(b)(1) for additional information. See IRM 20.1.1.3.2, Reasonable Cause, for reasonable cause provisions.

8.11.5.6.4 (12-18-2015)

Closing Procedures

  1. Refer to IRM 8.11.4.1.7, Closing Actions for Appeals Technical Employees, for information on closing procedures for ATEs.

  2. Closing Form - Prepare Form 5402 and ACM outlining the settlement and summary of the case resolution.

    1. Use a separate line for each penalty for each year.

    2. Add the appropriate PRN for each penalty for each year.

8.11.5.7 (12-18-2015)

IRC 6039F Notice of Large Gifts from Foreign Persons (Form 3520)

  1. See IRM 20.1.9.10, IRC 6039F(c) – Large Gifts From Foreign Persons, for additional information.

  2. Appeal Rights - IRC 6039F(c) is an International penalty and has post-assessed, pre-payment, penalty appeal rights. See IRM 20.1.9.1.1(5), Appeal Rights.

8.11.5.7.1 (12-18-2015)

Reporting and Filing Requirements

  1. U.S. persons who receive gifts or bequests during the taxable year from a foreign individual, foreign estate, foreign corporation, or foreign partnership, that in the aggregate exceed the current threshold amounts, must file Form 3520, Annual Return to Report Transactions With Foreign Trust and Receipt of Certain Foreign Gifts, and fill out Part IV.

    1. A Form 3520 is filed once a year for all reportable gifts within the year with respect to each U.S. person. It is generally due on the due date of the filer’s income tax return, including extension, and is filed with the Ogden Campus.

8.11.5.7.2 (12-18-2015)

New Receipt Procedures for Appeals Technical Employees

  1. Upon receipt of the case, the ATE must follow the procedures outlined in IRM 8.11.4.1.4, Assignment of PENAP Cases, and IRM 8.11.4.1.5, New Receipt Procedures for Appeals Technical Employees.

  2. Verify the penalty was assessed on IDRS on MFT 13 for BMF and MFT 55 for IMF, Transaction Code (TC) 240, with PRN 668.

  3. For case files coming from Examination, match the penalty assessed to the Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

    Caution:

    If the penalty is not assessed, the ATE will close the case and return it to the originating function as a premature referral.

8.11.5.7.3 (12-18-2015)

Penalty Relief

  1. Reasonable Cause: IRC 6039F(c)(2) provides that no penalty shall apply to any failure if the U.S. person shows such failure is due to reasonable cause and not willful neglect. See IRM 20.1.1.3.2, Reasonable Cause, for reasonable cause provisions.

8.11.5.7.4 (12-18-2015)

Closing Procedures

  1. Refer to IRM 8.11.4.1.7, Closing Actions for Appeals Technical Employees, for information on closing procedures for ATEs.

  2. Closing Form - Prepare Form 5402 and ACM outlining the settlement and summary of the case resolution.

    1. Use a separate line for each penalty for each year.

    2. Add the appropriate PRN for each penalty for each year.

8.11.5.8 (12-18-2015)

IRC 6039G – Information on Individuals Losing United States Citizenship

  1. IRC 6039G – Information on individuals losing United State citizenship, requires that U.S. citizens who have relinquished their citizenship and long-term residents who have terminated their U.S. residency (expatriated) to provide certain information for the taxable year in which they relinquished their U.S. citizenship or terminated residency . The information includes but is not limited to, the taxpayers TIN, mailing address, foreign country where individual is residing, foreign country where individual has citizenship, and information detailing income, assets, and liabilities of such individual.

  2. See IRM 20.1.9.11, IRC 6039G – Expatriation Reporting Requirements, for additional information.

  3. Appeal Rights - IRC 6039G is an International penalty and has post-assessed pre-payment penalty appeal rights. See IRM 20.1.9.1.1(5), Appeal Rights.

8.11.5.8.1 (12-18-2015)

Reporting and Filing Requirements

  1. Form 8854 is used by U.S. citizens who have relinquished their citizenship and long-term residents who have terminated their U.S. residency (expatriated) after June 3, 2004, to provide the information required by IRC 6039G. An individual who expatriated after June 3, 2004 and before June 17, 2008 must also file Form 8854 to comply with IRC 7701(n). There are separate expatriation regimes that apply to individuals who expatriated on or before June 3, 2004, who expatriated after June 3, 3004 but before June 17, 2008, and for those who expatriated on or after June 17, 2008. See IRM 20.1.9.11, IRC 6039G-Expatriation Reporting Requirements, for more information.

  2. Filing of Form 8854, Initial and Annual Expatriation Statement, varies depending upon the date of expatriation. If an individual expatriated after June 3, 2004 and before June 17, 2008, the individual remains subject to tax as a U.S. citizen or resident until the Form 8854 is filed and proper authorities are notified of the expatriating act. If an individual expatriated on or after June 17, 2008, the Form 8854 is due by the due date of the individual’s tax return for the year that includes the year of expatriation.

8.11.5.8.2 (12-18-2015)

New Receipt Procedures for Appeals Technical Employees

  1. Upon receipt of the case, the ATE must follow the procedures outlined in IRM 8.11.4.1.4, Assignment of PENAP Cases, and IRM 8.11.4.1.5, New Receipt Procedures for Appeals Technical Employees.

  2. Verify the penalty was assessed on IDRS on MFT 55, Transaction Code (TC) 240, with the appropriate PRN 671.

  3. For case files coming from Examination, match the penalty assessed to the Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

    Caution:

    If the penalty is not assessed, the ATE will close the case and return it to the originating function as a premature referral.

8.11.5.8.3 (12-18-2015)

Penalty Relief

  1. Reasonable Cause: IRC 6039G(c)(2) provides that no penalty shall apply if the failure is due to reasonable cause and not willful neglect. See IRM 20.1.1.3.2Reasonable Cause, for reasonable cause provisions.

8.11.5.8.4 (12-18-2015)

Closing Procedure

  1. Refer to IRM 8.11.4.1.7, Closing Actions for Appeals Technical Employees, for information on closing procedures for ATEs.

  2. Closing Form - Prepare Form 5402 and ACM outlining the settlement and summary of the case resolution.

    1. Use a separate line for each penalty for each year.

    2. Add the appropriate PRN for each penalty for each year.

8.11.5.9 (12-18-2015)

IRC 6677(a) Failure to File Information with Respect to Certain Foreign Trusts (Form 3520)

  1. Form 3520 is used by U.S. persons to report certain transactions with foreign trusts, and receipt of certain large gifts of bequests from certain foreign persons. A separate Form 3520 must be filed for transactions with each foreign trust.

  2. Appeal Rights - IRC 6677(a) is an International penalty and has post-assessed pre-payment penalty appeal rights. See IRM 20.1.9.1.1(5), Appeal Rights.

8.11.5.9.1 (12-18-2015)

Reporting and Filing Requirements

  1. U.S. persons (and executors of estates of U.S. decedents), who have an IRC 6048 filing obligation and who fail to file a complete and accurate Form 3520, may be assessed penalties for such failures.

  2. Form 3520 is filed once a year for all reportable transactions within the year with respect to each U.S. person. It is generally due on the due date of the filer’s income tax return, including extension, and is filed with the Ogden Campus.

    1. Form 3520 information is on Business Master File with a MFT of 68.

    2. A separate Form 3520 is filed for each foreign trust.

8.11.5.9.2 (12-18-2015)

New Receipt Procedures for Appeals Technical Employees

  1. Upon receipt of the case, the ATE must follow the procedures outlined in IRM 8.11.4.1.4, Assignment of PENAP Cases, and IRM 8.11.4.1.5, New Receipt Procedures for Appeals Technical Employees.

  2. Verify the penalty was assessed on either IDRS MFT 13 or MFT 55, Transaction Code (TC) 240, with the appropriate Penalty Reference Number (PRN).

    1. Initial penalty with a PRN 659

    2. Continuation penalty with a PRN 702

  3. For case files coming from Examination, match the penalty assessed to the Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

    Caution:

    If the penalty is not assessed, the ATE will close the case and return it to the originating function as a premature referral.

8.11.5.9.3 (12-18-2015)

Penalty Relief

  1. Reasonable Cause: IRC 6677(d) provides that no penalty shall apply to any failure if such failure is due to reasonable cause and not willful neglect. See IRM 20.1.1.3.2, Reasonable Cause.

8.11.5.9.4 (12-18-2015)

Closing Procedures

  1. Refer to IRM 8.11.4.1.7, Closing Actions for Appeals Technical Employees, for information on closing procedures for ATEs.

  2. Closing Form - Prepare Form 5402 and ACM outlining the settlement and summary of the case resolution.

    1. Use a separate line for each penalty for each year.

    2. Add the appropriate PRN for each penalty for each year.

8.11.5.10 (12-18-2015)

IRC 6677(b) Failure to File Information Return with Respect to U.S. Owners of a Foreign Trust (Form 3520-A)

  1. A foreign trust with a U.S. owner files Form 3520-A annually to provide information about the trust, its U.S. beneficiaries, and any U.S. person who is treated as an owner of any portion of the foreign trust.

  2. See IRM 20.1.9.14, IRC 6677(a) and (b)—Foreign Trusts With U.S. Owners—Form 3520-A, for additional information.

  3. Appeal Rights - IRC 6677(b) is an International penalty and has post-assessed pre-payment penalty appeal rights. See IRM 20.1.9.1.1(5), Appeal Rights.

8.11.5.10.1 (12-18-2015)

Reporting and Filing Requirements

  1. A foreign trust with a U.S. owner must file Form 3520-A in order for the U.S. owner to satisfy its annual information reporting requirements under IRC 6048(b). Each U.S. person treated as an owner of any portion of a foreign trust under IRC 671 through IRC 679 is responsible for ensuring that the foreign trust files Form 3520-A and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries.

    1. Form 3520-A is filed annually for the foreign trust with the Ogden Campus.

    2. Form 3520-A information is on Business Master File with a MFT of 42.

8.11.5.10.2 (12-18-2015)

New Receipt Procedures for Appeals Technical Employees

  1. Upon receipt of the case, the ATE must follow the procedures outlined in IRM 8.11.4.1.4, Assignment of PENAP Cases, and IRM 8.11.4.1.5, New Receipt Procedures for Appeals Technical Employees.

  2. Verify the penalty was assessed on either IDRS MFT 13 or 55, Transaction Code (TC) 240, with the appropriate Penalty Reference Number (PRN).

    1. Initial penalty with a PRN 660.

    2. Continuation penalty with a PRN 703.

  3. For case files coming from Examination, match the penalty assessed to the Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

    Caution:

    If the penalty is not assessed, the ATE will close the case and return it to the originating function as a premature referral.

8.11.5.10.3 (12-18-2015)

Penalty Relief

  1. Reasonable Cause: IRC 6677(d) provides that no penalty shall apply to any failure if such failure is due to reasonable cause and not willful neglect. See IRM 20.1.1.3.2, Reasonable Cause.

8.11.5.10.4 (12-18-2015)

Closing Procedures

  1. Refer to IRM 8.11.4.1.7, Closing Actions for Appeals Technical Employees, for information on closing procedures for ATEs.

  2. Closing Form - Prepare Form 5402 and ACM outlining the settlement and summary of the case resolution.

    1. Use a separate line for each penalty for each year.

    2. Add the appropriate PRN for each penalty for each year.

8.11.5.11 (12-18-2015)

IRC 6679 Failure to File Returns of U.S. Persons with Respect to Certain Foreign Corporations and Partnerships

  1. IRC 6679 imposes a civil penalty on a person who fails to meet the reporting requirements of IRC 6046 and IRC 6046A.

  2. See IRM 20.1.9.15, IRC 6679 – Return of U.S. Persons With Respect to Certain Foreign Corporations and Partnerships, for additional information.

  3. Appeal Rights - IRC 6679 is an International penalty and has post-assessed pre-payment penalty appeal rights. See IRM 20.1.9.1.1(5), Appeal Rights.

8.11.5.11.1 (12-18-2015)

Reporting and Filing Requirements

  1. See IRM 20.1.9.15, IRC 6679 – Return of U.S. Persons With Respect to Certain Foreign Corporations and Partnerships, for additional information.

  2. IRC 6679 provides a penalty for failure to furnish information and timely file an information return as follows:

    1. IRC 6046 requires Schedule O, of Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. Schedule O, Organization or Reorganization of Foreign Corporation and Acquisitions and Dispositions of its Stock is to be filed by the due date of the taxpayer’s income tax return, including extensions.

    2. IRC 6046A requires Schedule P of Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. Schedule P, Acquisitions, Dispositions, and Changes of Interests in a Foreign Partnership, to be filed by the due date of the taxpayer’s income tax return, including extensions.

8.11.5.11.2 (12-18-2015)

New Receipt Procedures for Appeals Technical Employees

  1. Upon receipt of the case, the ATE must follow the procedures outlined in IRM 8.11.4.1.4, Assignment of PENAP Cases, and IRM 8.11.4.1.5, New Receipt Procedures for Appeals Technical Employees.

  2. Verify the penalty was assessed on either IDRS MFT 13 or 55, Transaction Code (TC) 240, with the appropriate Penalty Reference Number (PRN).

    1. Initial penalty with a PRN 613.

    2. Continuation penalty with a PRN 704.

  3. For case files coming from Examination, match the penalty assessed to the Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

    Caution:

    If the penalty is not assessed, the ATE will close the case and return it to the originating function as a premature referral.

8.11.5.11.3 (12-18-2015)

Penalty Relief

  1. Reasonable Cause applies to the initial penalty IRC 6679(a)(1). See IRM 20.1.1.3.2, Reasonable Cause, for reasonable cause provisions.

  2. Treas. Reg. 301.6679-1(a)(3), states in part, that if the taxpayer exercises ordinary business care and prudence and is nevertheless unable to furnish any item of information required under IRC 6046 and the regulations thereunder, such failure shall be considered due to reasonable cause.

8.11.5.11.4 (12-18-2015)

Closing Procedures

  1. Refer to IRM 8.11.4.1.7, Closing Actions for Appeals Technical Employees, for information on closing procedures for ATEs.

  2. Closing Form - Prepare Form 5402 and ACM outlining the settlement and summary of the case resolution.

    1. Use a separate line for each penalty for each year.

    2. Add the appropriate PRN for each penalty for each year.

8.11.5.12 (12-18-2015)

IRC 6689 – Penalty for Failure to File Notice of Foreign Tax Redetermination

  1. The IRC 6689 penalty may be applicable to the failure to file Notice of Foreign Tax Redetermination, Form 1116, Foreign Tax Credit for Individuals, Estate or Trust, or Form 1118, Foreign Tax Credit –Corporations. See IRM 20.1.9.19, IRC 6689 – Failure to File Notice of Foreign Tax Redetermination, for additional information on penalty.

  2. Appeal Rights - IRC 6689 is an International penalty and has post-assessed pre-payment penalty appeal rights. See IRM 20.1.9.1.1(5), Appeal Rights.

8.11.5.12.1 (12-18-2015)

Reporting and Filing Requirements

  1. See IRM 20.1.9.19.1, Reporting and Filing Requirements, for additional information on reporting and filing requirements.
    The following information returns are applicable to this section:

    1. Form 1116, Foreign Tax Credit for Individuals, Estate or Trust, is used to support the foreign tax credit claimed for the amount of any income, war profits, and excess profits tax paid or accrued during the taxable year to any foreign country or U.S. possession.

    2. Form 1118, Foreign Tax Credit –Corporations, is used to support a corporation’s foreign tax credit claimed for the amount of any income, war profits, and excess profits tax paid or accrued during the taxable year to any foreign country or U.S. possession.

8.11.5.12.2 (12-18-2015)

New Receipt Procedures for Appeals Technical Employees

  1. Upon receipt of the case, the ATE must follow the procedures outlined in IRM 8.11.4.1.4, Assignment of PENAP Cases, and IRM 8.11.4.1.5, New Receipt Procedures for Appeals Technical Employees.

  2. Verify the penalty was assessed on either IDRS MFT 13 or 55, Transaction Code (TC) 240, with PRN 570.

  3. For case files coming from Examination, match the penalty assessed to the Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

    Caution:

    If the penalty is not assessed, the ATE will close the case and return it to the originating function as a premature referral.

8.11.5.12.3 (12-18-2015)

Penalty Relief

  1. Reasonable Cause: IRC 6689(a) provides that no penalty shall apply to any failure if such failure is due to reasonable cause and not to willful neglect. See IRM 20.1.1.3.2, Reasonable Cause, for reasonable cause provisions.

8.11.5.12.4 (12-18-2015)

Closing Procedures

  1. Refer to IRM 8.11.4.1.7, Closing Actions for Appeals Technical Employees, for information on closing procedures for ATEs.

  2. Closing Form - Prepare Form 5402 and ACM outlining the settlement and summary of the case resolution.

    1. Use a separate line for each penalty for each year.

    2. Add the appropriate PRN for each penalty for each year.

8.11.5.13 (12-18-2015)

IRC 6039E – Failure to Provide Information Concerning Resident Status (Passports and Immigration)

  1. IRC 6039E provides a penalty for failure to provide information concerning resident status. See IRM 20.1.9.21, IRC 6039E – Failure to Provide Information Concerning Resident Status (Passports and Immigration), for additional information.

  2. Appeal Rights - IRC 6039E is an International penalty and has post-assessed pre-payment penalty appeal rights. See IRM 20.1.9.1.1(5), Appeal Rights.

8.11.5.13.1 (12-18-2015)

Reporting and Filing Requirements

  1. Refer to IRM 20.1.9.21.1, Reporting and Filing Requirements, for information.

8.11.5.13.2 (12-18-2015)

New Receipt Procedures for Appeals Technical Employees

  1. Upon receipt of the case, the ATE must follow the procedures outlined in IRM 8.11.4.1.4, Assignment of PENAP Cases, and IRM 8.11.4.1.5, New Receipt Procedures for Appeals Technical Employees.

  2. Verify the penalty was assessed on IDRS with MFT 55 PRN 679.

  3. For case files coming from Examination, match the penalty assessed to the Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

    Caution:

    If the penalty is not assessed, the ATE will close the case and return it to the originating function as a premature referral.

8.11.5.13.3 (12-18-2015)

Penalty Relief

  1. Reasonable Cause: IRC 6039E(c) provides that no penalty shall apply to any failure if such failure is due to reasonable cause and not to willful neglect. See IRM 20.1.1.3.2, Reasonable Cause, for reasonable cause provisions.

8.11.5.13.4 (12-18-2015)

Closing Procedures

  1. Refer to IRM 8.11.4.1.7, Closing Actions for Appeals Technical Employees, for information on closing procedures for ATEs.

  2. Closing Form - Prepare Form 5402 and ACM outlining the settlement and summary of the case resolution.

    1. Use a separate line for each penalty for each year.

    2. Add the appropriate PRN for each penalty for each year.

8.11.5.14 (12-18-2015)

IRC 6038D Information with Respect to Foreign Financial Assets (FATCA)

  1. IRC 6038D, created by the Foreign Account Tax Compliance Act (FACTA), is a statute written subsequent to the Foreign Bank and Financial Account Report (FBAR) statute. FATCA was enacted in 2010 as part of P.L. 111-147, the Hiring Incentives to Restore Employment (HIRE) Act. Some taxpayers who file FBAR forms have a further requirement to file Form 8938, Statement of Specified Foreign Financial Assets, if they have specified foreign financial assets with an aggregate value exceeding $50,000 on the last day of the tax year or $75,000 at any time during the tax year, with higher thresholds for married individuals filing jointly and individuals living abroad.

    Note:

    See IRM 20.1.9.22, IRC 6038D – Information with respect to Foreign Financial Assets, for additional information concerning foreign financial assets. See IRM 8.11.6, FBAR Penalties, for additional information concerning FBAR penalties.

  2. The Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR form. Individuals must file each form for which they meet the relevant reporting threshold. See IRM Exhibit 5.21.6-1 for a comparison of these two foreign account reporting requirements.

  3. Appeal Rights - IRC 6038D is an International penalty and has post-assessed pre-payment penalty appeal rights. See IRM 20.1.9.1.1(5), Appeal Rights.

8.11.5.14.1 (12-18-2015)

Reporting and Filing Requirements

  1. See IRM 20.1.9.22.1, Reporting and Filing Requirements, for detailed procedures on reporting and filing requirements for IRC 6038D.

  2. Form 8938, Statement of Specified Foreign Financial Assets, is used by a specified individual to report his foreign financial assets if the total value of all the specified assets in which the individual has an interest is more than the appropriate threshold. See IRM 20.1.9.22.1, Reporting and Filing Requirements, for detailed procedures on reporting and filing requirements for IRC 6038D.

8.11.5.14.2 (12-18-2015)

New Receipt Procedures for Appeals Technical Employees

  1. Upon receipt of the case, the ATE must follow the procedures outlined in IRM 8.11.4.1.4, Assignment of PENAP Cases, and IRM 8.11.4.1.5, New Receipt Procedures for Appeals Technical Employees.

  2. Verify the penalty was assessed on IDRS MFT 13 for BMF and MFT 55 for IMF, transaction code 240 with the appropriate Penalty Reference Number (PRN).

    1. Initial penalty with a PRN 700.

    2. Continuation penalty with a PRN 710.

  3. For case files coming from Examination, match the penalty assessed to the Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

    Caution:

    If the penalty is not assessed, the ATE will close the case and return it to the originating function as a premature referral

8.11.5.14.3 (12-18-2015)

Penalty Relief

  1. IRC 6038D(g) provides that no penalty shall apply if the individual shows that the failure is due to reasonable cause and not to willful neglect.

  2. An individual will not have reasonable cause merely because a foreign jurisdiction would impose a civil or criminal penalty on any person for disclosing the required information. IRC 6038D(g).

  3. See IRM 20.1.1.3.2, Reasonable Cause, for reasonable cause provisions.

8.11.5.14.4 (12-18-2015)

Closing Procedures

  1. Refer to IRM 8.11.4.1.7, Closing Actions for Appeals Technical Employees, for information on closing procedures for ATEs.

  2. Closing Form - Prepare Form 5402 and ACM outlining the settlement and summary of the case resolution.

    1. Use a separate line for each penalty for each year.

    2. Add the appropriate PRN for each penalty for each year.

8.11.5.15 (12-18-2015)

International Penalty - Accelerated Appeals Consideration

  1. This section provides Accelerated Appeals pre-payment review of International penalties for Category 1 Taxpayers.

  2. Category 1 Taxpayers are taxpayers that during an examination have been assessed an international penalty described in IRM 8.11.5.14.1 below and are either:

    1. taxpayers with assets totaling $100 million or more, or

    2. any other taxpayers that have been specifically designated by mutual agreement between Compliance and Appeals (because such designation is in the best interest of tax administration).

8.11.5.15.1 (12-18-2015)

International Penalty Types Eligible for Accelerated Appeals Consideration

  1. Category 1 Taxpayers can elect to appeal the following international penalties on a post-assessment, pre-payment basis as part of the accelerated appeal process:

    • IRC 6038(b) – Failure to provide information with respect to certain foreign corporations or partnerships — Form 5471 and Form 8865,

    • IRC 6038A(d) – Failure to provide information or maintain records with respect to certain foreign owned - U.S. corporations — Form 5472.

    • IRC 6038B(c) – Failure to provide information relating to transfers or exchanges to foreign persons (corporations after 1984 and to partnerships after 8/5/1997) – Form 926 and Form 8865, (transfer to foreign entities)

    • IRC 6038C(c) – Failure to provide information or maintain records with respect to foreign corporations engaged in U.S. business —Form 5472 (foreign company with USTB)

    • IRC 6038D – Failure to provide information with respect to foreign financial assets.

  2. If the Category 1 Taxpayer elects accelerated pre-payment consideration of these penalties, it will be the taxpayer's only opportunity to contest that penalty before Appeals. Therefore, if the Category 1 Taxpayer disagrees with the results of an accelerated appeal, the taxpayer will not receive any additional Appeals consideration before or after paying that penalty.

    Note:

    Non-accelerated post-assessed pre-payment appeal rights are available for all other taxpayers hereinafter designated as Category 2 taxpayers.

  3. Category 2 Taxpayers are taxpayers that during an examination are assessed an International penalty and do not qualify as Category 1 Taxpayers. They are eligible for Appeals review under standard Appeals procedures. The most common Category 2 penalties are:

    • IRC 6038 series penalties assessed at any time (except for such penalties assessed during the examination against Category 1 taxpayers.)

    • IRC 6038 series penalties assessed at the conclusion of the examination against taxpayers with assets totaling $100 million or more and who would otherwise qualify as a Category 1 Taxpayer.

    • IRC 6039E(c) – Failure to provide statement concerning resident status. See IRM 8.11.5.12 for guidance.

    • IRM 6039F(c)(1)(B) – Failure to file information relating to gifts from foreign persons, Form 3520. See IRM 8.11.5.6 for guidance

    • IRC 6039G(d) – Failure to provide tax return statement for year of termination by individual losing US citizenship, Form 8854. See IRM 8.11.5.7 for guidance.

      Note:

      If the Category 2 Taxpayer does not appeal the international penalty before payment, the taxpayer may dispute the penalty before Appeals under standard claim procedures following payment.

  4. If the Category 1 Taxpayer is eligible for accelerated consideration and does not appeal the above international penalty before payment on an accelerated basis, the taxpayer may dispute the penalty before Appeals under standard claim procedures following payment.

  5. If a Category 1 taxpayer is eligible for accelerated consideration and is not provided an opportunity to appeal the international penalty during the examination on an accelerated basis, the taxpayer may dispute the penalty before Appeals on a post-assessment, pre-payment, non-accelerated basis under standard Appeal procedures.

8.11.5.15.2 (12-18-2015)

Appeals Coordination of Accelerated International Penalty (AAP) Cases

  1. Once the case has been identified as an accelerated appeal, Compliance will contact the Appeals International Specialist Coordinator (AISC) for information on where to send the case. AISC information can be found on the Appeals Case Routing page. See the "International" tab on the Appeals Website at http://appeals.web.irs.gov/.

  2. Compliance will take action to suspend/stay all Collection activity before sending the penalty case file to Appeals.

8.11.5.15.3 (12-18-2015)

Appeals International Specialist Coordinator (AISC) Responsibilities for AAP Cases

  1. The AISC facilitates the expeditious case assignment, coordination, and resolution of AAP International Penalty cases within Appeals.

  2. Within 2 business days of Compliance contacting Appeals, the Technical Specialist will take the following actions:

    • Contact the appropriate Appeals Team Manager (ATM) to identify the ATCL or Technical Specialist who will be assigned the case.

    • Identify the APS Unit responsible for establishing the case file on ACDS.

    • Notify Compliance where to send the case file, including the address and ATM's name to ensure prompt handling of the case.

    • Send a secure email to APS Manager, the employee assigned the case and their ATM with the following information:

    1. Taxpayer's Name, address and TIN;

    2. Power of Attorney's (POA) Name and address;

    3. Tax Periods;

    4. Statute Date for each tax period;

    5. IRC Penalty Code Section(s);

    6. Dollar Amount of Penalty for each Tax Period; and

    7. Date of the protest.

      Note:

      This information will be used to create and assign the case on ACDS.

8.11.5.15.4 (12-18-2015)

Appeals Officer Receipt Procedures- Accelerated International Penalty Cases

  1. Accelerated International Penalty (AAP) cases are high priority cases. Appeals will complete consideration of AAP cases within 120 days of receipt.

  2. Within 5 business days of receipt of the case file, the appropriate ATCL and/or Technical Specialist will take the following actions:

    • Verify that the penalty was assessed and update the statute as warranted.

    • Verify tax periods and dollar amounts.

    • Confirm that the uniform acknowledgement letter was mailed to the taxpayer and/or authorized representative.

    • Verify the ACDS feature codes AI, IT and IC are on the system. If the feature codes are missing, update the system through CARATS.

    • Check the IDRS command code TXMOD to be sure collection activity is suspended.

  3. To promote consistency in resolving penalty disputes, the Technical Specialist will prepare the ACM after considering any applicable information from the AISC and prior to any substantive resolution discussions with the taxpayer/representative.

8.11.5.15.5 (12-18-2015)

Appeals Officer Closing Procedures - Accelerated International Penalty Cases

  1. Assemble the Appeals Case Memorandum (ACM) and related closing documents.

  2. Within 5 business days of reaching resolution, the ATCL and/or Technical Specialist will:

    • Prepare the closing documents (Form 5402, the ACM, and any appropriate agreement forms).

    • Form 5402 should include the following instructions to APS in the Special Remarks section: “EXPEDITE CLOSING REQUIRED --- ACCOUNT ADJUSTMENTS MUST BE DONE IMMEDIATELY”.

    • Obtain ATM approval on the resolution and forward a copy of the ACM to the AISC.

  3. Within 2 business days of receipt, the ATM will forward the case to the local APS for closing.