International Information Reporting Penalties

 

An International Information Reporting Penalty may apply if you have financial activity from foreign sources and you don’t follow tax laws, rules, and regulations.

We mail you a notice if you owe a penalty and charge monthly interest until you pay the amount in full.

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What to Do If You Got an IRS Notice

Check that the information on the notice is correct. The notice has information about the penalty, the reason for the charge and what to do next. Follow the instructions.

If you can correct an issue in the notice, there may be no penalty. If the information is not correct or you don’t agree, you may be able to dispute the penalty.

For details, see Understanding Your IRS Notice or Letter.

How We Calculate the Penalty

We calculate International Information Return Penalties differently depending on the return you file.

Continuation Penalties may apply and increase until you file a complete and correct return or reach the maximum penalty amount.

Forms and Regulations

You may need to file certain information return forms if you do business in a country other than the U.S. or have:

  • Financial assets in a foreign country
  • Ownership in a foreign business
  • Financial activity from a foreign source

Get details on International Information Return Penalties with the tax law in Title 26 of the U.S. Code in the Internal Revenue Code (IRC)

Certain individuals and domestic entities must report specified foreign financial assets if the value is more than a certain amount. See Form 8938, Statement of Specified Foreign Financial Assets

Tax law: IRC Section 6038D

Officers, directors, and shareholders in certain foreign corporations must report their ownership interest and financial activity. See Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations

Tax law: IRC Section 6038, IRC Section 6046,  IRC Section 6679

U.S. persons and executors of estates of U.S. deceased individuals must report: 

  • Contributions to, and distributions from foreign trusts
  • Ownership in a foreign trust under the grantor trust rules
  • Receipt of certain large gifts from foreign persons

See Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts

Tax law: IRC Section 6039F, IRC Section 6048, IRC Section 6677

Foreign trusts with at least one U.S. owner under the grantor trust rules must report 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. If the foreign trust doesn’t file Form 3520-A, the U.S. owner must file a substitute Form 3520-A to report the information. See Form 3520-A, Annual Information Return of a Foreign Trust With a U.S. Owner

Tax law: IRC Section 6048 and IRC Section 6677

Report activity of controlled foreign partnerships including transfers, acquisitions, dispositions, and changes in foreign partnership interests. See Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships

Tax law: IRC Section 6038, IRC Section 6038B, and IRC Section 6679
 

Interest on a Penalty

We charge interest on penalties.

The date we begin to charge interest varies by the penalty type and amount. Interest increases the amount you owe until you pay your balance in full. For more information about the interest we charge on penalties, see Interest on Underpayments and Overpayments.

Pay a Penalty

You can pay online or by mail with a che­ck.

Pay your penalty in full to stop future penalties and interest from adding up. 

Apply for a Payment Plan

If you can't pay the full amount of your penalty on time, pay what you can now and apply for a payment plan. You may reduce future penalties and interest when you set up a payment plan.

Remove or Reduce a Penalty

We may be able to remove or reduce some penalties if you acted in good faith and can show reasonable cause. You may have reasonable cause if you:

  • Acted responsibly before and after the failure occurred and
  • Have significant reasons or the failure resulted from circumstances beyond your control

Not all International Information Reporting Penalties qualify for reasonable cause.

By law, we cannot remove or reduce interest unless the penalty is removed or reduced.

For more information, see penalty relief.

Dispute a Penalty

If you disagree with the amount you owe, you may dispute the penalty.

Call us at the toll-free number at the top right corner of your notice or letter or write us a letter stating why we should reconsider the penalty. Sign and send your letter along with any supporting documents to the address on your notice.

Have this information when you call or send your letter:

  • The notice or letter we sent you
  • The penalty you want us to reconsider (for example, a Form 1099-NEC late filing penalty)
  • For each penalty, an explanation of why you think we should remove it

If a notice or letter we sent you has instructions or deadlines for disputing the penalty, pay careful attention. You must follow the instructions to dispute the penalty.
If you didn't receive a notice or letter, get telephone assistance.

Request a Refund

If you pay the penalty, you may file Form 843, Claim for Refund and Request for Abatement, and include:

  • A letter that explains why you believe the penalty does not apply
  • A copy of the notice we sent you
  • Copies of any supporting documents

Avoid a Penalty

You can avoid a penalty when you:

Apply for an Extension of Time

If you need more time to prepare your tax return, apply for an extension of time to file. This does not grant you an extension of time to pay. A payment plan can help you pay over time.

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