20.1.9  International Penalties (Cont. 2)

20.1.9.15 
IRC 6679—Return of U.S. Persons With Respect to Certain Foreign Corporations and Partnerships

20.1.9.15.2  (07-08-2015)
Penalty Letters, Notice Letters, and Notices

  1. Form 5471, Schedule O—Refer to http://lmsb.irs.gov/hq/pftg/penalties/Resources/Audit/_print/Form5471SchOLtr.doc.

  2. Form 8865 Schedule P—Refer to http://lmsb.irs.gov/hq/pftg/penalties/Resources/Audit/_print/Form8865SchPLtr.doc.

  3. CP Notices—Once a penalty is identified by the campus or a penalty case is closed by the field and the Form 8278 is processed, a BMFCP 215, Notice of Penalty Charge, for penalties assessed on MFT 13 with PRN 613 is generated and sent to the taxpayer. A sample of a CP 215 notice (for a different penalty) is shown at Exhibit 20.1.9-7, Sample CP 215 Notice.

20.1.9.15.3  (04-22-2011)
Penalty Assertion

  1. An initial penalty is asserted on Form 8278 using PRN 613 when the examiner has established that the taxpayer:

    1. Was a U.S. citizen or resident,

    2. Had a filing requirement under IRC 6046 or IRC 6046A (or under IRC 6035 for tax years beginning prior to January 1, 2005),

    3. Failed to timely file the required information on Form 5471 or Form 8865, and

    4. Does not have reasonable cause for the failure to file.

20.1.9.15.4  (03-21-2013)
Penalty Computation

  1. Initial Penalty—The penalty is $10,000 per failure.

    Note:

    For tax years beginning prior to January 1, 2005, the penalty for failure to file Form 5471 Schedule N, Return of Officers, Directors, and 10% or More Shareholders of a Foreign Personal Holding Company, was $1,000 per failure and was assessed with PRN 614.

  2. Continuation Penalty—If any failure continues more than 90 days after the day on which the notice of such failure was mailed to the taxpayer (90-day period), additional penalties of $10,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of the 90-day period will apply. The maximum continuation penalty is limited to $50,000 per failure. These additional penalties are also asserted on Form 8278 using PRN 704.

    Note:

    Prior to January 2013, PRN 619 was used for this continuation penalty.

  3. The maximum total penalty under IRC 6679 is $60,000 per failure (an initial penalty maximum of $10,000 plus the continuation penalty maximum of $50,000 per failure).

20.1.9.15.5  (03-21-2013)
Reasonable Cause

  1. No reasonable cause should be considered until the taxpayer has furnished and filed the required information for all open years (not on extension).

  2. IRC 6679(a)(1) provides a reasonable cause exception to the initial penalty.

  3. Reasonable cause does not apply to the continuation penalty.

20.1.9.16  (03-21-2013)
Reserved

  1. Reserved

20.1.9.17  (03-21-2013)
IRC 6686—Information Returns for IC-DISCs

  1. IRC 6686 was added by P.L. 92-178 for Domestic International Sales Corporations (DISC) or former Foreign Sales Corporations (FSC).

  2. The provisions for FSCs were repealed by P.L. 106-519 effective generally for transactions after September 30, 2000.

  3. Although the FSC provisions were repealed, the Interest Charge Domestic International Sales Corporations (IC-DISC) provisions remain in effect.

20.1.9.17.1  (03-21-2013)
Reporting and Filing Requirements

  1. An IC-DISC is a domestic corporation that has elected to be an IC-DISC on Form 4876-A, Election To Be Treated as an Interest Charge DISC, and its election is still in effect.

  2. An IC-DISC must file an annual U.S. tax return even though it pays no U.S. income taxes. See IRC 6011(c)(2) and Treas. Reg. 1.991-1.

20.1.9.17.2  (03-21-2013)
Penalty Letters, Notice Letters, and Notices

  1. CP Notices—Once a penalty is identified by the campus or a penalty case is closed by the field and the Form 8278 is processed, a BMFCP 215, Notice of Penalty Charge, for penalties assessed on MFT 13 with PRN 605 is generated and sent to the taxpayer. A sample of a CP 215 notice (for a different penalty) is shown at Exhibit 20.1.9-7, Sample CP 215 Notice.

20.1.9.17.3  (03-21-2013)
Penalty Assertion

  1. A penalty is asserted by field examiners on Form 8278 using PRN 605 when the examiner has established the following:

    1. The entity is an IC-DISC and has failed to timely file Form 1120-IC-DISC, or

    2. Files a return which does not show the information required under IRC 6011(c), and

    3. Does not have reasonable cause for the failure to file or supply information.

  2. Penalties may also be asserted by the campus for incomplete or inaccurate returns filed. Refer to IRM 3.11.16.36.7, Civil Penalty—IRC Section 6686.

20.1.9.17.4  (03-21-2013)
Penalty Computation

  1. The penalty under IRC 6686 is $100 for each failure to supply information (but the total amount imposed for all such failures during any calendar year shall not exceed $25,000) and $1,000 for each failure to file a Form 1120-IC-DISC.

20.1.9.17.5  (03-21-2013)
Reasonable Cause

  1. No reasonable cause should be considered until the taxpayer has filed all open years (not on extension).

  2. IRC 6686 provides for such penalties unless it is shown that such failure to file or supply information is due to reasonable cause.

  3. To be considered for reasonable cause, the taxpayer must make an affirmative showing of reasonable cause in a written statement containing a declaration that it was made under the penalties of perjury.

20.1.9.18  (04-22-2011)
IRC 6688—Reporting for Residents of U.S. Possessions (U.S. Territories)

  1. IRC 6688 applies to any person described in IRC 7654(a) who is required to furnish information and who fails to comply with such requirement unless it is shown that such failure is due to reasonable cause and not to willful neglect.

20.1.9.18.1  (04-22-2011)
Reporting and Filing Requirements

  1. IRC 6688 provides a penalty for individuals with total worldwide gross income of more than $75,000 who take the position that, for U.S. income tax reporting purposes (see IRC 937(c)), they became or ceased to be bona fide residents of a U.S. possession (U.S. territory) and fail to meet the requirements under IRC 937 by filing Form 8898, Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Possession. Note that:

    1. The instructions to Form 8898 currently specify that the form only needs to be filed by such individuals if they have more than $75,000 in worldwide gross income in the taxable year that they take the position that they became or ceased to be a bona fide resident of a U.S. possession.

    2. U.S. Possessions—Guam, American Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), the Commonwealth of Puerto Rico, and the U.S. Virgin Islands are U.S. possessions, as that term is used in the IRC. These jurisdictions are more commonly referred to as U.S. territories..

    3. Form 8898 is filed separately with the Philadelphia Campus (or campus identified in future instructions), not with the individual’s tax return.

  2. The penalty also applies to individuals who have adjusted gross income of $50,000 and gross income of $5,000 from sources within Guam or CNMI and who fail to file Form 5074, Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands (CNMI), as required under Treas. Reg. 301.7654-1(d) for individuals who file U.S. income tax returns.

  3. For tax years 2001 through 2005, Form 8898 must be filed by October 16, 2006.

  4. Subsequent to 2005, Form 8898 must be filed by the due date (including extensions) for filing Form 1040, U.S. Individual Income Tax Return, or Form 1040NR, U.S. Nonresident Alien Income Tax Return.

20.1.9.18.2  (03-21-2013)
Penalty Letters, Notice Letters, and Notices

  1. CP Notices—Once a penalty is identified by the campus or a penalty case is closed by the field and the Form 8278 is processed, an IMFCP 15, Notice of Penalty Charge, for penalties assessed on MFT 55 with PRN 669 is generated and sent to the taxpayer. A sample of a CP 15 notice (for a different penalty) is shown at Exhibit 20.1.9-6, Sample CP 15 Notice.

20.1.9.18.3  (04-22-2011)
Penalty Assertion

  1. The penalty is asserted on Form 8278 using PRN 669 when an examiner determines the following:

    1. The taxpayer failed to furnish information and file Form 8898 about his or her residence status of a U.S. Possession, or

    2. The taxpayer failed to meet the requirements of Treas. Reg. 301.7654-1(d) and not timely file a properly executed Form 5074, Allocation of Individual Income Tax to Guam or Commonwealth of the Northern Mariana Islands, or

    3. The taxpayer failed to meet the requirements of IRC 932(a) and Treas. Reg. 1.932-1(b)(1) and did not file Form 8689, and

    4. Does not have reasonable cause for the failure.

20.1.9.18.4  (04-22-2011)
Penalty Computation

  1. For tax years ending after October 22, 2004, the penalty is $1,000 for failure to file the respective Form 8898, Form 5074, Form 8689, or for filing incorrect or incomplete information.

  2. For tax years ending before October 23, 2004, the penalty is $100.

20.1.9.18.5  (03-21-2013)
Reasonable Cause

  1. No reasonable cause should be considered until the taxpayer has furnished and filed the required information for all open years (not on extension).

  2. IRC 6688 provides for such penalties unless it is shown that such failure is due to reasonable cause and not to willful neglect.

20.1.9.19  (03-21-2013)
IRC 6689—Failure to File Notice of Foreign Tax Redetermination

  1. IRC 6689 provides a penalty for failure to notify the Service of a foreign tax redetermination with respect to the following:

    1. The amount of foreign taxes paid, accrued, or deemed paid by the taxpayer for which a notice is required under IRC 905(c), or

    2. The amount of adjustment to the deduction for certain foreign deferred compensation plans under IRC 404A(g).

20.1.9.19.1  (03-21-2013)
Reporting and Filing Requirements

  1. A taxpayer is required to notify the Service of any foreign tax redetermination that may affect U.S. tax liability. If a taxpayer has a reduction in the amount of foreign tax liability, the taxpayer must provide notification by filing Form 1040X, Amended U.S. Individual Income Tax Return, or Form 1120X, Amended U.S. Corporation Income Tax Return, and Form 1116, Foreign Tax Credit, or Form 1118, Foreign Tax Credit—Corporations, by the due date (with extensions) of the original return for the taxpayer's taxable year in which the foreign tax redetermination occurred. See former Treas. Reg. 1.905-4T(b)(1)(ii). In addition:

    1. If a foreign tax redetermination results in an additional assessment of foreign tax, the taxpayer has the 10-year period provided by IRC 6511(d)(3)(A) to file a claim for refund based on additional foreign tax credits. See former Treas. Reg. 1.905-4T(b)(1)(iii).

    2. When a foreign tax redetermination affects the indirect or deemed paid credit under IRC 902, the taxpayer must provide notification by reflecting the adjustments to the foreign corporation’s pools of post-1986 undistributed earnings and post-1986 foreign income taxes on a Form 1118 for the taxpayer’s first taxable year with respect to which the redetermination affects the computation of foreign taxes deemed paid.

  2. Redetermination of IRC 404A Deduction—A taxpayer is required to notify the Service, in the time and manner specified in the regulations under IRC 905, if the foreign tax deduction for deferred compensation expense is adjusted. See IRC 404A(g)(2)(B).

  3. Foreign Tax Redetermination—Former Treas. Reg. 1.905-3T(c) defines a foreign tax redetermination as a change in the foreign tax liability that may affect a U.S. taxpayer’s foreign tax credit and includes the following:

    1. Accrued taxes that when paid differ from the amounts added to post-1986 foreign income taxes or claimed as credits by the taxpayer,

    2. Accrued taxes that are not paid before the date two years after the close of the taxable year to which such taxes relate, or

    3. Any tax paid that is refunded in whole or in part, and

    4. For taxes taken into account when accrued but translated into dollars on the date of payment, the difference between the dollar value of the accrued foreign tax and the dollar value of the foreign tax actually paid attributable to fluctuations in the value of the foreign currency relative to the dollar between the date of accrual and the date of payment.

  4. Statute of Limitations—IRC 6501(c)(5) independently suspends the normal statute of limitations for additions to tax resulting from a redetermination of foreign tax. IRC 905(c) contains special rules for such changes.

20.1.9.19.2  (04-22-2011)
Penalty Letters, Notice Letters, and Notices

  1. CP Notices—Once a penalty is identified by the campus or a penalty case is closed by the field and the Form 8278 is processed, a CP notice is generated and sent to the taxpayer.

    1. IMF—A CP 15, Notice of Penalty Charge, for penalties assessed on MFT 55 with PRN 570 is generated and sent to the taxpayer. A sample of a CP 15 notice for this penalty is shown at Exhibit 20.1.9-6, Sample CP 15 Notice.

    2. BMF—A CP 215, Notice of Penalty Charge, for penalties assessed on MFT 13 with PRN 570 is generated and sent to the taxpayer. A sample of a CP 215 notice (for a different penalty) is shown at Exhibit 20.1.9-7, Sample CP 215 Notice.

20.1.9.19.3  (07-08-2015)
Penalty Assertion

  1. The assessment of the penalty is not subject to deficiency proceedings and is asserted on Form 8278 using PRN 570 when the examiner determines the following:

    1. The taxpayer failed to notify the Service of a foreign tax redetermination, and

    2. Does not have reasonable cause for the failure.

      Caution:

      Unless final regulations under Treas. Reg. 1.905-4 have been published, penalties under IRC 6689 are only applicable to U.S. tax deficiencies that result from foreign tax redeterminations that occurred in the following:
      1) Taxable years beginning on or after November 7, 2007 (the date of publication of temporary Treas. Reg. 1.905-4T in the Federal Register), where the foreign tax redetermination occurred on or before November 5, 2010 (the date on which the regulations expired), or
      2) Any of the three taxable years of a U.S. taxpayer immediately preceding the taxpayer’s first taxable year beginning on or after November 7, 2007.

20.1.9.19.4  (03-21-2013)
Penalty Computation

  1. The examiner determines the deficiency attributable to the foreign tax redetermination and to this deficiency is added a penalty computed as follows:

    1. 5 percent of the deficiency if the failure to file a notice of foreign tax redetermination is for not for more than 1 month;

    2. An additional 5 percent of the deficiency for each month (or fraction thereof) during which the failure continues, but not to exceed in the aggregate 25 percent of the deficiency; and

    3. If this penalty applies, then the penalty under IRC 6662(a) and IRC 6662(b)(1), relating to the failure to pay by reason of negligent or intentional disregard of rules and regulations, shall not apply.

20.1.9.19.5  (03-21-2013)
Reasonable Cause

  1. Reasonable cause should only be considered if the taxpayer has filed amended returns for all affected years for which the particular foreign tax redetermination results in a U.S. tax deficiency and for which amended returns are required under former temporary Treas. Reg. 1.905-4T.

  2. IRC 6689(a) provides for such a penalty unless it is shown that such failure is due to reasonable cause and not due to willful neglect.

20.1.9.20  (04-22-2011)
IRC 6712—Failure to Disclose Treaty-Based Return Position

  1. IRC 6712 provides a penalty for failure to disclose a treaty-based return position as required by IRC 6114.

20.1.9.20.1  (04-22-2011)
Reporting and Filing Requirements

  1. IRC 6114 generally requires that if a taxpayer takes a position that any treaty of the U.S. overrules or modifies any provision of the Code, the taxpayer must disclose the position. A taxpayer meets the disclosure requirement by attaching Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), or appropriate successor form to his or her timely filed tax return (including extensions).

    Note:

    A taxpayer may be able to treat payments or income items of the same type (e.g., interest items) received from the same ultimate payor (e.g., the obligor of a note) as a single separate payment or income item. See Treas. Reg. 301.6114-1(d)(3)(ii) for guidance on rules for single separate payment or income item.

  2. If an individual would not otherwise be required to file a tax return, the individual must file Form 8833 at the IRS campus where he or she would normally file a return to make the treaty-based return position disclosure under IRC 6114. See Treas. Reg. 301.6114-1(a)(1)(ii) or Treas. Reg. 301.7701(b)-7.

20.1.9.20.2  (04-22-2011)
Penalty Letters, Notice Letters, and Notices

  1. CP Notices—Once a penalty is identified by the campus or a penalty case is closed by the field and the Form 8278 is processed, a CP notice is generated and sent to the taxpayer as follows:

    1. IMF—A CP 15, Notice of Penalty Charge, for penalties assessed on MFT 55 with PRN 664 is generated and sent to the taxpayer. A sample of a CP 15 notice (for a different penalty) is shown at Exhibit 20.1.9-6, Sample CP 15 Notice.

    2. BMF—A CP 215, Notice of Penalty Charge, for penalties assessed on MFT 13 with PRN 664 is generated and sent to the taxpayer. A sample of a CP 215 notice (for a different penalty) is shown at Exhibit 20.1.9-7, Sample CP 215 Notice.

20.1.9.20.3  (03-21-2013)
Penalty Assertion

  1. The penalty is not subject to deficiency proceedings. It is asserted on Form 8278 using PRN 664 when the examiner determines the following:

    1. The taxpayer failed to meet the requirements of IRC 6114 by not filing the proper form (i.e., Form 8833), and

    2. Does not have reasonable cause for such failure.

20.1.9.20.4  (03-21-2013)
Penalty Computation

  1. Individuals—For an individual, the penalty is $1,000 for each separate treaty-based return position taken and not properly disclosed.

  2. Corporations—For a C corporation, the penalty is $10,000 for each separate failure to disclose a treaty-based return position.

20.1.9.20.5  (03-21-2013)
Reasonable Cause

  1. No reasonable cause should be considered until the taxpayer has filed all open years (not on extension).

  2. IRC 6712(b) provides that the Secretary may waive all or any part of the penalty on a showing by the taxpayer that there was reasonable cause for the failure and that the taxpayer acted in good faith.

  3. Waiver Criteria—Treas. Reg. 301.6712-1(b) provides the authority to waive, in whole or in part, the penalty imposed under IRC 6712 if the taxpayer’s failure to disclose the required information is not due to willful neglect. An affirmative showing of lack of willful neglect must be made by the taxpayer in the form of a written statement setting forth all the facts alleged to show lack of willful neglect and must contain a declaration by the taxpayer that the statement is made under penalties of perjury.

20.1.9.21  (04-22-2011)
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.

20.1.9.21.1  (03-21-2013)
Reporting and Filing Requirements

  1. Passports—IRC 6039E generally requires that any individual, who applies for a United States (U.S.) passport, must include with such application the taxpayer’s TIN (if the individual has one), any foreign country in which such individual is residing, and any other information as the Secretary may prescribe.

  2. Immigration—IRC 6039E generally requires that any individual, who applies to be lawfully accorded the privilege of residing permanently in the U.S. as an immigrant in accordance with the immigration laws, must include with such application the taxpayer’s TIN (if the individual has one), information with respect to whether such individual is required to file a return of the tax imposed by Chapter 1 for such individual’s most recent 3 taxable years, and any other information as the Secretary may prescribe.

20.1.9.21.2  (03-21-2013)
Penalty Letters, Notice Letters, and Notices

  1. Passports—The following letters should be used:

    1. Letter 4318, IRC 6039E Initial (Passport), and attachment Form 13997, Validating Your TIN and Reasonable Cause, will be issued to propose the penalty.

    2. Letter 4319, IRC 6039E No Penalty (Passport), will be issued after reviewing (and accepting) the information received from the taxpayer to notify the taxpayer that no penalty will be asserted.

    3. Letter 4320, IRC 6039E Penalty (Passport), will be issued to notify the taxpayer that he or she did not have reasonable cause and that the penalty will be asserted.

  2. CP Notices—Once a penalty is identified by the campus or a penalty case is closed by the field and the Form 8278 is processed, an IMFCP 15, Notice of Penalty Charge, for penalties assessed on MFT 55 with PRN 679 is generated and sent to the taxpayer. A sample of a CP 15 notice (for a different penalty) is shown at Exhibit 20.1.9-6, Sample CP 15 Notice.

  3. ImmigrationReserved.

20.1.9.21.3  (04-22-2011)
Penalty Assertion

  1. The penalty is not subject to deficiency proceedings. It is asserted on Form 8278 using PRN 679 when the examiner determines the following:

    1. The individual failed to meet the requirements of IRC 6039E by not providing complete passport application information, or

    2. The individual failed to meet the requirements of IRC 6039E by not providing complete resident application information.

20.1.9.21.4  (04-22-2011)
Penalty Computation

  1. The penalty is $500 for such failure.

  2. Only one $500 penalty may be asserted per application.

20.1.9.21.5  (04-22-2011)
Reasonable Cause

  1. IRC 6039E provides for such penalties unless it is shown that such failure is due to reasonable cause and not to willful neglect.

20.1.9.22  (07-08-2015)
IRC 6038D—Information With Respect to Specified Foreign Financial Assets

  1. IRC 6038D was added by P.L. 111-147, the Hiring Incentives to Restore Employment (HIRE) Act, for any individual failing to disclose information with respect to specified foreign financial assets during any taxable year beginning after March 18, 2010.

    Caution:

    IRS Notice 2011-55 suspends the requirement for individuals to attach Form 8938, Statement of Specified Foreign Financial Assets, to income tax returns that are filed before the release of Form 8938 in Decemberr 2011. Therefore, no penalty under IRC 6038D can be asserted on individuals who file during, or before December 2011.

20.1.9.22.1  (07-08-2015)
Reporting and Filing Requirements

  1. A complete and accurate Form 8938, Statement of Specified Foreign Financial Assets, attached to a timely filed tax return fulfills the reporting requirements.

  2. The required information for such specified foreign financial assets include the following:

    1. For all accounts and assets:
      i. The maximum value of each account or asset during the year, and
      ii. The foreign currency in which the account or asset is designated, the exchange rate used to convert the account or asset value into U.S. dollars, and the source of the exchange rate if other than the U.S. Treasury Financial Management Service.

    2. In the case of any foreign deposit or custodial account:
      i. The account type, including account number, and account opening and closing dates, and
      ii. The name and address of the financial institution in which the account is maintained.

    3. In the case of any stock of, or interest in, a foreign entity:
      i. A description of the stock or interest in the entity, including any identifying number, and acquisition and disposition dates, and
      ii. The name, address, and type of foreign entity.

    4. In the case of all other specified foreign financial assets:
      i. A description of the asset, including any identifying number, and
      ii. The names and addresses of all issuers and counter-parties with respect to the asset.

20.1.9.22.2  (07-08-2015)
Penalty Letters, Notice Letters, and Notices

  1. Letter 4618—This is a notice letter required to be mailed to the taxpayer under the provisions of IRC 6038D(d).

  2. CP Notices—Once a penalty is identified by the campus or a penalty case is closed by the field and the Form 8278 is processed, a CP notice is generated and sent to the taxpayer as follows:

    1. IMF—A CP 15, Notice of Penalty Charge, for penalties assessed on MFT 55 with PRN 700 is generated and sent to the taxpayer. A sample of a CP 15 notice (for a different penalty) is shown at Exhibit 20.1.9-6, Sample CP 15 Notice.

    2. BMF—A CP 215, Notice of Penalty Charge, for penalties assessed on MFT 13 with PRN 700 is generated and sent to the taxpayer. A sample of a CP 215 notice (for a different penalty) is shown at Exhibit 20.1.9-7, Sample CP 215 Notice.

20.1.9.22.3  (07-08-2015)
Penalty Assertion

  1. BMF taxpayers. BMF civil penalties are developed and then asserted using Form 8278 which, when closed and input, will create a MFT 13 module for the penalty. The initial penalty is distinguished from the continuation penalty by a unique PRN as follows:

    1. Initial penalty. The initial penalty is asserted by field examiners on Form 8278 using PRN 700.

    2. Continuation penalty. The continuation penalty is asserted on a separate Form 8278 using PRN 710.

    3. Separate penalty case files for each type of penalty. Although the initial penalty and continuation penalty fall under one Code section and appear adjacent to each other on Form 8278, separate case files must be maintained for each type of penalty. However, multiple year examinations of either penalty can be included in one penalty case file for the respective penalty.

    4. Separate Form 8278 for each BMF penalty. These civil penalties are unique from income tax cases in that there is no examination report or agreement form for the taxpayer to sign. Therefore, the IRS relies on the Form 8278 in each penalty case file for information to verify that each assessment was properly approved and input. As a result, examiners must complete and include in the penalty case file a separate Form 8278 for each initial and continuation penalty as well as for each year to which each penalty may apply. For example, if an initial penalty will be asserted against three different years, the penalty case file must include three different Forms 8278—one for each year penalized.

    5. Complete and attach Form 886-A, Explanation of Items, to each Form 8278 and include the following information that justifies assertion of the penalty for each year:
      1. Name and TIN of the taxpayer required to file Form 8938,
      2. Computation of penalty,
      3. Date the notice letter (Letter 4618) was issued,
      4. Any other significant correspondence,
      5. Date Form 8938 was received (if received), and
      6. Discussion of facts and law as necessary, including consideration of reasonable cause for not filing; pattern of filing information returns; or other related tax violations (e.g., understatement of income tax related to the failure to file Form 8938).

    6. If a penalty investigation is started and the penalty is waived for reasonable cause or other reasons, document the reason(s) the penalty was waived in the workpapers.

    7. Include a copy of the following with your workpapers:
      1. The secured Form 8938 (if secured, with stamped received date) and all supporting statements,
      2. The first page of the income tax return with a comment that you inspected the entire return and that Form 8938 was not attached,
      3. Copy of notice letter (Letter 4618) with certified mail receipt, and
      4. Copies of any relevant documents from the related income tax case file.

      Note:

      If Form 8938 has not been secured and the initial penalty case file will be closed separately, retain an extra copy of the above information that will later support assertion of the continuation penalty.

    8. Keep each penalty case file separate from any related income tax cases. Identify each penalty case as a "Related Taxpayer" on Form 3198, Special Handling Notice for Examination Case Processing.

    9. Complete and attach Form 3198 to the outside of each penalty case. On page one in the "Special Features" section of the form, check the box for "Civil Penalties (Form 8278)."

    10. In the "Other instructions" lines in the "Special Features" section of Form 3198, indicate the PRN and penalty amounts to be assessed. For example: "Assess PRN 700 for $10,000—See Form 8278 enclosed" for the initial penalty or "Assess PRN 710 for $30,000—See Form 8278 enclosed" for the continuation penalty.

      Note:

      Form 5344, Examination Closing Record, is not used for a penalty case file.

  2. IMF taxpayers. IMF civil penalties are asserted differently depending on whether or not the taxpayers have filed a joint income tax return as follows:

    1. Temporary Regulation 1.6038D-8T(b) provides that married specified individuals who file a joint annual return and fail to file a required Form 8938 that includes the information required with respect to any taxable year at the time and in the manner described are subject to penalties as if the married specified individuals are a single specified person. The liability of married specified individuals who file a joint annual return with respect to any penalties under this section is joint and several.

      Caution:

      IRS Notice 2011-55 suspends the requirement for individuals to attach Form 8938 to income tax returns that are filed before the release of Form 8938 in December 2011. Therefore, no penalty under IRC 6038D can be asserted on individuals who file during or before November 2011.

    2. If taxpayers are married filing a joint return, the initial penalty and continuation penalty (if applicable) are developed and then asserted using Form 3870, Request for Adjustment, on the MFT 30 module (for which taxpayers have joint liability). See IRM 20.1.9.22.3.1, Asserting Penalty on MFT 30 Joint Return Module.

      Note:

      Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, is not used to assert penalties to the MFT 30 module.

    3. For all other taxpayers, the penalties are developed and asserted using Form 8278 which, when closed and input, will create a MFT 55 module for the civil penalties. See IRM 20.1.9.22.3.2, Asserting Penalty on MFT 55 Modules.

      Note:

      Form 3870 is not used to assert penalties to the MFT 55 individual (or "several" ) module.

    4. Separate penalty case files for each type of penalty. Although the initial penalty and continuation penalty fall under one Code section and appear adjacent to each other on Form 8278, separate case files must be maintained for each type of penalty. However, multiple year examinations of either penalty can be included in one penalty case file of the respective penalty.

    5. Separate assessment document for each penalty. These penalties are unique from income tax cases in that there is no examination report or agreement form for the taxpayer to sign. Therefore, the IRS relies on the assessment document(s) in each penalty case file for information to verify that each assessment was properly input. As a result, examiners must complete and include in the penalty case file a separate assessment documents for each initial and continuation penalty as well as for each year to which each penalty may apply. For example, if an initial penalty was asserted against three different years, the penalty case file must include three different assessment documents—one for each year penalized.

20.1.9.22.3.1  (07-08-2015)
Asserting Penalty on MFT 30 Joint Return Module

  1. In order to assert the penalty as a joint liability of both spouses, Form 3870 is the assessment document required. Form 3870 will direct the input of the penalty to MFT 30 as well as identify the PRN to be applied to any initial or continuation penalty.

  2. Initial Penalty. The examiner will prepare the case file as follows:

    1. Complete a separate Form 3870 for each year that penalties will be assessed. You are encouraged to use the fillable job aid for the initial penalty athttps://organization.ds.irsnet.gov/sites/SBSEfeMySBSE/ServicewidePenalties/General Documents/Form 3870 Initial Penalty Job Aid-IRC6038D.pdf and complete the following:
      1. Enter information in all fillable spaces in Blocks 1, 2, 3, 5 and 10 of the job aid,
      2. Enter the amount of penalty on line 29 of the job aid in the block for "Item Adjustment,"
      3. The examiner must sign line 13 on Part 1 and on Part 3 and enter telephone number, fax number and date (if manually signed), and
      4. The supervisor must sign line 14 on Part 1 and on Part 3 and enter date (if manually signed).

      Caution:

      If job aid is not used, additional information shown on the job aid in Blocks 3, 4, 7, 11 as well as on line 29 must be entered on a clean Form 3870 if desired.

    2. Place "Part 1—Copy for Adjustments Branch" and "Part 2—For Processing as Form 3177" of each Form 3870 as the very first documents inside the penalty case file.

    3. The next items in the case file will be to complete and attach Form 886-A to each "Part 3—Copy for Originator" of each Form 3870 and include the following information that justifies assertion of the penalty for each year:
      1. Name and TINs of the joint taxpayers required to file Form 8938,
      2. Computation of penalty,
      3. Date the notice letter (Letter 4618) was issued,
      4. Any other significant correspondence,
      5. Date Form 8938 was received (if received), and
      6. Discussion of facts and law as necessary, including consideration of reasonable cause for not filing; pattern of filing information returns; or other related tax violations (e.g., understatement of income tax related to the failure to file Form 8938).

    4. If an initial penalty investigation is started and the penalty is waived for reasonable cause or other reasons, document the reason(s) the penalty was waived in the workpapers.

    5. Include a copy of the following with your workpapers:
      1, The secured Form 8938 (if secured, with stamped received date) and all supporting statements,
      2. The first page of the income tax return with a comment that you inspected the entire return and that Form 8938 was not attached,
      3. Copy of notice letter (Letter 4618) with certified mail receipt, and
      4. Copies of any relevant documents from the related income tax case file.

      Reminder:

      If Form 8938 has not been secured and the initial penalty case file will be closed separately, retain an extra copy of the above information that will later support assertion of the continuation penalty.

    6. Keep the penalty case file separate from any related income tax cases. Identify the penalty case as a "Related Taxpayer" on Form 3198, Special Handling Notice for Examination Case Processing.

    7. Complete and attach Form 3198 to the outside of the penalty case and be sure that:
      1. On page one in the "Special Features" section of the form, the box for "Civil Penalties (Form 8278)" is checked, and
      2. "(Form 8278)" is crossed out using red ink or red marker and replaced with"(Form 3870)."

    8. In the "Other instructions" lines in the "Special Features" section of Form 3198, indicate the PRN and penalty amounts to be assessed. For example: "Assess PRN 700 for $10,000—See Request for Adjustment Form 3870 enclosed."

      Note:

      Form 5344, Examination Closing Record, is not used for a penalty case file.

  3. Continuation Penalty. The examiner will prepare the case file as follows:

    1. Complete a separate Form 3870 for each year that penalties will be assessed. You are encouraged to use the fillable job aid for the initial penalty at https://organization.ds.irsnet.gov/sites/SBSEfeMySBSE/ServicewidePenalties/General Documents/Form 3870 Continuation Penalty Job Aid-IRC6038D.pdf and complete the following:
      1. Enter information in all fillable spaces in Blocks 1, 2, 3, 5 and 10 of the job aid,
      2. Enter the amount of penalty on line 29 of the job aid in the block for "Item Adjustment."
      3. The examiner must sign line 13 on Part 1 and on Part 3 and enter telephone number, fax number and date (if manually signed).
      4. The supervisor must sign line 14 on Part 1 and on Part 3 and enter date (if manually signed).

      Caution:

      If a job aid is not used, additional information shown on the job aid in Blocks 3, 4, 7, 11 as well as on line 29 must be entered on a clean Form 3870.

    2. Place "Part 1—Copy for Adjustments Branch" and "Part 2—For Processing as Form 3177" of each Form 3870 as the very first documents inside the penalty case file.

    3. The next items in the case file will be to complete and attach Form 886-A to each "Part 3—Copy for Originator" of each Form 3870 and include the following information that justifies assertion of the penalty for each year:
      1. Name and TINs of the joint taxpayers required to file Form 8938,
      2. Computation of penalty,
      3. Date the notice letter (Letter 4618) was issued,
      4. Any other significant correspondence,
      5. Date Form 8938 was received (if received), and
      6. Discussion of facts and law as necessary, including consideration of reasonable cause for not filing; pattern of filing information returns; or other related tax violations (e.g., understatement of income tax related to the failure to file Form 8938).

    4. If a continuation penalty investigation is started and the penalty is waived for reasonable cause or other reasons, document the reason(s) the penalty was waived in the workpapers.

    5. Include a copy of the following with your workpapers:
      1. The secured Form 8938 (if secured, with stamped received date) and all supporting statements,
      2. The first page of the income tax return with a comment that you inspected the entire return and that Form 8938 was not attached,
      3. Copy of notice letter (Letter 4618) with certified mail receipt, and
      4. Copies of any relevant documents from the related income tax case file.

    6. Keep the continuation penalty case file separate from any related income tax or initial penalty cases. Identify the penalty case as a "Related Taxpayer" on Form 3198.

    7. Complete and attach Form 3198 to the outside of the penalty case and be sure that:
      1. On page one in the "Special Features" section of the form, the box for "Civil Penalties (Form 8278)" is checked, and
      2. "(Form 8278)" is crossed out using red ink or red marker and replaced with"(Form 3870)."

    8. In the "Other instructions" lines in the "Special Features" section of Form 3198, indicate the PRN and penalty amounts to be assessed. For example: "Assess PRN 710 for $30,000—See Request for Adjustment Form 3870 enclosed."

      Note:

      Form 5344, Examination Closing Record, is not used for a penalty case file.

20.1.9.22.3.2  (07-08-2015)
Asserting Penalty on MFT 55 Modules

  1. To otherwise assert the penalty (on individuals not filing a joint return), Form 8278 is the assessment document required. Once the penalty case is closed and upon input of Form 8278, an MFT 55 module will be created and the penalty identified by the PRN designated on Form 8278.

  2. Initial Penalty and Continuation Penalty. The examiner will prepare the respective penalty case files as follows:

    1. Complete a separate Form 8278 for each initial penalty and continuation penalty as well as separate forms for each year that the respective penalties will be assessed.

    2. Complete the appropriate line item that can be found in Section 9H of Form 8278.

    3. Complete and attach Form 886-A, Explanation of Items, to each Form 8278 and include the following information that justifies assertion of the penalty for each year:
      1. Name and TIN of the taxpayer required to file Form 8938,
      2. Computation of penalty,
      3. Date the notice letter (Letter 4618) was issued,
      4. Any other significant correspondence,
      5. Date Form 8938 was received (if received), and
      6. Discussion of facts and law as necessary, including consideration of reasonable cause for not filing; pattern of filing information returns; or other related tax violations (e.g., understatement of income tax related to the failure to file Form 8938).

    4. If a penalty investigation is started and the penalty is waived for reasonable cause or other reasons, document the reason(s) the penalty was waived in the workpapers.

    5. Include a copy of the following in each set of workpapers for the initial penalty and continuation penalty (if applicable):
      1. The secured Form 8938 (if secured, with stamped received date) and all supporting statements,
      2. The first page of the income tax return with a comment that you inspected the entire return and that Form 8938 was not attached,
      3. Copy of notice letter (Letter 4618) with certified mail receipt, and
      4. Copies of any relevant documents from the related income tax case file.

      Reminder:

      If Form 8938 has not been secured and the initial penalty case file will be closed separately, retain an extra copy of the above information that will later support assertion of the continuation penalty.

    6. Keep each penalty case file separate from any related cases. Identify each penalty case as a "Related Taxpayer" on Form 3198, Special Handling Notice for Examination Case Processing.

    7. Complete and attach Form 3198 to the outside of each penalty case. On page one in the "Special Features" section of the form, check the box for "Civil Penalties (Form 8278)."

    8. In the "Other instructions" lines in the "Special Features" section of Form 3198, indicate the PRN and penalty amounts to be assessed. For example: "Assess PRN 700 for $10,000—See Form 8278 enclosed" for the initial penalty or "Assess PRN 710 for $30,000—See Form 8278 enclosed" for the continuation penalty.

      Note:

      Form 5344, Examination Closing Record, is not used for a penalty case file.

20.1.9.22.3.3  (07-08-2015)
For Cases Submitted to Appeals

  1. Examiners need to be sure to include the following in each initial penalty and continuation penalty case file:

    1. Form 4665, Report Transmittal, and

    2. Taxpayer's written request for appeal of penalties.

      Caution:

      Comments on Form 4665, must be in compliance with Rev. Proc. 2012-18, which provides, "The transmittal memorandum or any similar document that the originating function uses to transmit the administrative file (transmittal) should not include statements or comments intended to influence Appeals' decision-making process. This includes recommendations concerning what Appeals should consider and how Appeals should resolve the case." For additional information regarding Rev. Proc. 2012-18 visit http://mysbse.web.irs.gov/exam/tip/exparte/default.aspx.

20.1.9.22.4  (03-21-2013)
Penalty Computation

  1. Initial Penalty—The initial penalty is $10,000 for each taxable year with respect to which such failure occurs.

  2. Continuation Penalty—If any failure continues more than 90 days after the day on which the notice of such failure was mailed to the taxpayer (90-day period), additional penalties will apply. The continuation penalty is $10,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of the 90-day period. These additional penalties are also asserted on Form 8278 using PRN 710. The maximum continuation penalty is limited to $50,000 per failure.

20.1.9.22.5  (03-21-2013)
Reasonable Cause

  1. No reasonable cause should be considered until the taxpayer has filed all open years (not on extension).

  2. 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.

  3. 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.

Exhibit 20.1.9-1 
Quick Reference Guide to International Penalties

Taxpayer Filing Requirement Penalty Code Section
U.S. person with interest in: Foreign Corporation (FC) Form 5471 IRC 6038(b)
Foreign Partnership (FP) Form 8865
Foreign Disregarded Entity Form 8858
Penalty reducing Foreign Tax Credit: Foreign Corporation (FC) Form 5471 IRC 6038(c)
Foreign Partnership (FP) Form 8865
FC or FP with Foreign Disregarded Entity Form 8858
25 percent foreign-owned U.S. corporations Form 5472 IRC 6038A(d)
25 percent foreign-owned U.S. corporations that fail to: 1) authorize the reporting corporation to act as agent of a foreign related party, or 2) substantially comply with a summons for information Not applicable IRC 6038A(e)
Transferor of certain property to foreign persons: Foreign Corporation Form 926 IRC 6038B(c)
Foreign Partnership Form 8865 Schedule O
Foreign corporations engaged in U.S. business Form 5472 IRC 6038C(c)
Individuals receiving gifts from foreign persons exceeding $100,000 or $10,000 in the case of a gift from a foreign corporation or foreign partnership (adjusted annually for cost of living) Form 3520 IRC 6039F(c)
Individuals that relinquish their U.S. citizenship or abandon their long-term resident status Form 8854 IRC 6039G(c)
Foreign persons holding direct investments in U.S. real property interests Not applicable IRC 6652(f)
U.S. person who creates a foreign trust, transfers property to a foreign trust or receives a distribution from a foreign trust Form 3520 IRC 6677(a)
U.S. Owner of a foreign trust Form 3520-A IRC 6677(b)
Failure to file returns with respect to acquisitions of interests in: Foreign Corporation Form 5471 Schedule O IRC 6679,
Foreign Partnership Form 8865 Schedule P IRC 6679,
IC-DISC, or FSC failure to file returns or supply information: IC-DISC Form 1120-IC-DISC IRC 6686
FSC Form 1120-FSC
Allocation of Individual Income Tax to Guam or the CMNI Form 5074 IRC 6688
Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Possession Form 8898 IRC 6688
Taxpayer’s failure to file notice of foreign tax redetermination under IRC 905(c) or IRC 404A(g)(2) Form 1116 or Form 1118 (attached to Form 1040-X or Form 1120-X) IRC 6689
Taxpayer’s failure to file notice of foreign deferred compensation plan under IRC 404A(g)(2) Not applicable IRC 6689
Taxpayer’s failure to disclose treaty-based return position Form 8833 or statement IRC 6712
Failure to Provide Information Concerning Resident Status (Passports and Immigration) Not applicable IRC 6039E(c)
Taxpayer's failure to furnish information with respect to specified foreign financial assets Form 8938 IRC 6038D(d)

Exhibit 20.1.9-2 
Reference Guide to Forms

Form Description
Form 886-A Explanation of Items
Form 870 Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment
Form 926 Return by a U.S. Transferor of Property to a Foreign Corporation
Form 1040-X Amended U.S. Individual Income Tax Return
Form 1041 U.S. Income Tax Return (for Estates and Trusts)
Form 1042 Annual Withholding Tax Return for U.S. Source Income of Foreign Persons (Refer to IRM 4.10.21, Examination of Returns, U.S. Withholding Agent Examinations—Forms 1042 )
Form 1042-S Foreign Person’s U.S. Source Income Subject to Withholding (Refer to IRM 4.10.21)
Form 1116 Foreign Tax Credit (Individual, Estate or Trust)
Form 1118 Foreign Tax Credit—Corporations
Form 1120-FSC U.S. Income Tax Return of a Foreign Sales Corporation
Form 1120-IC-DISC Interest Charge Domestic International Sales Corporation Return
Form 1120-X Amended U.S. Corporation Income Tax Return
Form 3198 Special Handling Notice for Examination Case Processing
Form 3210 Document Transmittal
Form 3244 Payment Posting Voucher
Form 3520 Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
Form 3520-A Annual Return of Foreign Trust With U.S. Owner
Form 3870 Request for Adjustment
Form 4549 Income Tax Examination Changes
Form 4549-A Income Tax Discrepancy Adjustments
Form 5074 Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands
Form 5344 Examination Closing Record
Form 5471 Information Return of U.S. Person With Respect to Certain Foreign Corporations
Form 5472 Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business
Form 8278 Assessment and Abatement of Miscellaneous Civil Penalties
Form 8288 U.S. Withholding Tax Return for Disposition by Foreign Persons of U.S. Real Property Interests
Form 8288-A Statement of Withholding on Disposition by Foreign Persons of U.S. Real Property Interests
Form 8689 Allocation of Individual Income Tax to the U.S. Virgin Islands
Form 8804 Annual Return for Partnership Withholding Tax (Section 1446)
Form 8805 Foreign Partner’s Information Statement of Section 1446 Withholding Tax
Form 8813 Partnership Withholding Tax Payment Voucher (Section 1446)
Form 8833 Treaty Based Return Position Disclosure Under Section 6114 or 7701(b)
Form 8854 Initial and Annual Expatriation Information Statement
Form 8858 Information Return of U.S. Persons With Respect to Foreign Disregarded Entities
Form 8865 Return of U.S. Persons With Respect to Certain Foreign Partnerships
Form 8898 Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Possession
Form 8938 Statement of Specified Foreign Financial Assets
Form W-8CE Notice of Expatriation and Waiver of Treaty Benefits

Exhibit 20.1.9-3 
Quick Guide for Penalty Reference Numbers to Process International Penalty Assessments
(See Form 8278 for current updates)

PRN Penalty Description Penalty Rate or Amount Reference
595 2009 Offshore Voluntary Disclosure Program, 2011 Offshore Voluntary Disclosure Initiative (OVDI), and the 2012 OVDI. Penalty is % of highest aggregate account and asset value in all foreign bank accounts and entities for the tax year, provided that required conditions were met. 5% In lieu of all other penalties that may apply
596 20%
597 12 1/2%
598 25%
594 27 1/2%
603 Initial Penalty—Failure of Foreign Corporation Engaged in a U. S. Business to Furnish Information or Maintain Records $10,000 per failure subject to continuation penalty IRC 6038C(c)
604 Failure of Foreign Person to File Return Regarding Direct Investment in U. S. Real Property Interests $25 each day of failure. Max at lesser of $25,000 or 5% of aggregate FMV of U.S. real property interest IRC 6652(f)
605 Failure to File (FTF) Returns or Supply Information by DISC or FSC $100 each failure (max $25,000) to supply info and $1,000 for each FTF Form 1120–DISC or Form 1120-FSC IRC 6686
613 Initial Penalty—FTF Form 5471 Schedule O (IRC 6046) or Form 8865 Schedule P (IRC 6046A) $10,000 per failure subject to continuation penalty IRC 6679
619 Continuation Penalty—Penalty for Continued Failure to Provide Information After 90-Day Period $10,000 per each 30-day period after the expiration of the 90-day initial notification period IRC 6038(b)(2) and (c)
623 Initial Penalty—FTF Form 5471 or Form 8865 $10,000 per failure plus FTC reduction within 90-day initial notification period IRC 6038(b)
625 Initial Penalty—Failure to Provide Information with Respect to Certain Foreign-Owned Corporations (Form 5472) $10,000 per taxable year subject to continuation penalty IRC 6038A
659 Initial Penalty—FTF Form 3520 transactions with foreign trusts (IRC 6048(a)) greater of $10,000 or 35% of the gross reportable amount IRC 6677(a),
660 Initial Penalty—FTF Form 3520-A Foreign Trust with U.S. Owner (IRC 6048(b) and/or IRC 6048(c)) greater of $10,000 or 5% of the gross reportable amount IRC 6677(b)
664 Failure to disclose treaty-based return position (IRC 6114) $1,000 per failure ($10,000 in the case of a C corporation) IRC 6712
668 FTF Form 3520 for reporting receipt of certain foreign gifts 5% of the amount of the gift per month not to exceed 25% IRC 6039F
669 (IMF) FTF Form 8898 Regarding Residence in a U.S. Possession required by IRC 937(c) $1,000 per failure IRC 6688
FTF Form 5074 Allocation of Income Tax to Guam or CNMI required by IRC 7654 and Treas. Reg. 301.7654-1(d) $1,000 per failure IRC 6688
FTF Form 8689 Allocation of Income Tax to VI required by IRC 932(a) and Treas. Reg.1.932-1T(b)(1) $1,000 per failure IRC 6688
671 (IMF) Failure to File an Information Statement Regarding Loss of U. S. Citizenship or Long-term Permanent Residency FTF Form 8854 regarding expatriation $10,000 per failure IRC 6039G
676 FTF Form 926 or Form 8865 Schedule O 10% of the fair market value of property at time of transfer or exchange, not to exceed $100,000 unless the failure was caused by intentional disregard IRC 6038B
679 Failure to provide information concerning resident status (passports and immigration) $500 for each failure. IRC 6039E
700 Initial Penalty—Failure to provide information with respect to specified foreign financial assets (Form 8938) $10,000 for each taxable year for failure IRC 6038D
701 Continuation Penalty—Penalty for Continued Failure to Provide Information After 90-Day Period $10,000 per each 30-day period after the expiration of the 90-day initial notification period IRC 6038A(d)(2)
702 Continuation Penalty—Penalty for Continued Failure to Provide Information After 90-Day Period—Form 3520 $10,000 per each 30-day period after the expiration of the 90-day initial notification period IRC 6677(a)
703 Continuation Penalty—Penalty for Continued Failure to Provide Information After 90-Day Period—Form 3520-A $10,000 per each 30-day period after the expiration of the 90-day initial notification period IRC 6677(a)
704 Continuation Penalty—Penalty for Continued Failure to Provide Information After 90-Day Period $10,000 per each 30-day period after the expiration of the 90-day initial notification period IRC 6679(a)(2)
705 Continuation Penalty—Penalty for Continued Failure to Provide Information After 90-Day Period $10,000 per each 30-day period after the expiration of the 90-day initial notification period IRC 6038C(c)
710 Continuation Penalty—Failure to provide information with respect to specified foreign financial assets (Form 8938) $10,000 per each 30-day period after the expiration of the 90-day initial notification period IRC 6038D
1. Check current version of the Form 8278 on http://publish.no.irs.gov/cat12.cgi?request=CAT2&itemtyp=F&itemb=8278&items= for the most up to date listing of penalty reference numbers.

Exhibit 20.1.9-4 
International Penalties Subject to or Not Subject to Deficiency Proceeding

Reference Description Form Deficiency Proceedings
IRC 6038(b) Information Reporting With Respect to Certain Foreign Corporations and Partnerships—Penalty for Failure to Furnish Information Form 5471, Form 8858, or Form 8865 No
IRC 6038(c) Penalty of Reducing Foreign Tax Credit Plus Continuation Penalty Form 5471, Form 8858, or Form 8865 Yes
IRC 6038A(d) Information Reporting for Foreign-Owned Corporations Form 5472 No
IRC 6038A(e) Noncompliance Penalty for Failure to Authorize an Agent or Failure to Produce Records Not applicable Yes
IRC 6038B(c) Failure to Provide Notice of Transfers to Foreign Persons Form 926 or Form 8865 Schedule O No for penalty. Yes for tax on gain
IRC 6038C(c) Information With Respect to Foreign Corporations Engaged in U.S. Business Form 5472 No
IRC 6038C(d) Noncompliance Penalty for Foreign Related Party Failing to Authorize the Reporting Corporation to Act as its Limited Agent Not applicable Yes
IRC 6038D Failure to Provide Information With Respect to Specified Foreign Financial Assets Form 8938 No
IRC 6039E Failure to Provide Information Concerning Resident Status (Passports and Immigration) Not applicable No
IRC 6039F(c) Gifts from Foreign Persons Form 3520 Yes if IRC 6039F(c)(1)(A). No if IRC 6039F(c)(1)(B).
IRC 6039G Expatriation Reporting Requirements Form 8854, Form W-8CE No
IRC 6652(f) Foreign Persons Holding U.S. Real Property Investments Not applicable No
IRC 6677(a) Failure to File a Foreign Trust Information Return Form 3520 No
IRC 6677(b) Failure to File an Information Return With Respect to U.S. Owners of a Foreign Trust Form 3520-A No
IRC 6679 Return of U.S. Persons With Respect to Certain Foreign Corporations and Partnerships Form 5471 Schedule O, Form 8865 Schedule P, or Form 5471 Schedule N No
IRC 6686 Information Returns for Former FSCs Form 1120-IC-DISC, or Form 1120-FSC Yes
IRC 6688 Reporting for Residents of U.S. Possessions Form 5074, Form 8689 or Form 8898 Yes
IRC 6689 Failure to File Notice of Foreign Tax Redetermination Form 1116 or Form 1118 (attach to Form 1040-X or Form 1120-X) No
IRC 6712 Failure to Disclose Treaty-Based Return Position Form 8833 No

Exhibit 20.1.9-5 
Reasonable Cause Relief

Reasonable cause should not be considered until the taxpayer is in full compliance for all open years (not under extension) with the respective provisions of the law.
Example: If a taxpayer requests abatement of old years for a failure to file, furnish, report, or maintain records, but has not filed, furnished, reported or maintained records for intervening years that are open, the taxpayer should be solicited to file, furnish, report or maintain the required information before consideration of any reasonable cause.

Penalty Code Section Form Reasonable Cause Relief
IRC 6038(b) FCs—Form 5471
FPs—Form 8865
FCs and FPs with Foreign Disregarded Entities—Form 8858
Yes
IRC 6038(c) FCs—Form 5471
FPs—Form 8865
FCs and FPs with Foreign Disregarded Entities—Form 8858
Yes
IRC 6038A(d) Form 5472 Yes
IRC 6038A(e) Not applicable Not applicable
IRC 6038B(c) Form 926
Form 8865 Schedule O
Yes
IRC 6038C(c) Form 5472 Yes
IRC 6038C(d) Not applicable Not applicable
IRC 6038D Form 8938 Yes
IRC 6039E Not applicable Yes
IRC 6039F(c) Form 3520 Yes
IRC 6039G Form 8854, Form W-8CE Yes
IRC 6652(f) Not applicable Yes
IRC 6677(a) Form 3520 Yes
IRC 6677(b) Form 3520-A Yes
IRC 6679 Form 5471 Schedule O for IRC 6046
Form 8865 Schedule P for IRC 6046A
Yes
IRC 6686 Form 1120-IC-DISC, or
Form 1120-FSC
Yes
IRC 6688 Form 5074
Form 8689
Form 8898
Yes
IRC 6689 Form 1116 or Form 1118
(attach to Form 1040-X or Form 1120-X)
Yes

Exhibit 20.1.9-6 
Sample CP 15 Notice

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Exhibit 20.1.9-7 
Sample CP 215 Notice

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