Form 3520 Penalties in 2026: Why the IRS Stopped Auto-Assessing, and How to Protect Yourself

Form 3520 and Form 3520-A are forms that a person or entity may be required to submit under IRS requirements. If a required form is not submitted on time and there is no extension, a CP15 notice will be issued if the IRS catches the problem. The CP15 notice is what triggers the penalty assessment. Not every late filing results in a CP15 notice or a penalty.

Foreign trusts, overseas inheritances, large foreign gifts, and trust distributions trigger reporting obligations an ordinary income tax return does not reveal: affecting U.S. citizens, green card holders, expatriates, and beneficiaries. Missing these IRS Form 3520 and Form 3520-A filings is costly: If a required Form 3520 or Form 3520-A is not submitted on time and there is no extension, the IRS may issue a CP15 notice if it catches the problem. The CP15 notice is what triggers the penalty assessment. But the IRS approach has changed: under its current delinquent international information return procedures, reasonable cause statements attached to these forms may be reviewed before the IRS catches a problem and issues a CP15 notice. The CP15 notice is what triggers the penalty assessment.

Why Form 3520 Penalties Arise and Why the IRS Approach Now Requires a Reasonable-Cause Review

Form 3520 penalty assessments under Internal Revenue Code sections 6677 and 6039F follow a CP15 notice when the IRS catches a required filing problem. IRS guidance now directs that reasonable cause statements be considered before the IRS catches a problem and issues a CP15 notice, provided the taxpayer writes "Reasonable Cause Statement attached" atop the form. If the IRS catches a required filing problem, it may issue a CP15 notice. The CP15 notice is what triggers the penalty assessment.

What Form 3520 Reports and Which Taxpayers Must File Form 3520 in 2026

Form 3520 is used by U.S. persons, and in some cases executors, who transfer money or property to a foreign trust, are treated as its owner under grantor trust rules, receive a distribution, loan, or uncompensated use of trust property, or receive reportable foreign gifts. Four parts cover transfers, ownership, distributions, and gifts (Parts I-IV).

Form 3520-A and Form 3520: The Difference You Must Understand Before Responding to an IRS Notice

Form 3520-A is the annual information return of a foreign trust with a U.S. owner. The trust files it, but the owner must ensure filing and required statements. Failing that, the owner may attach a substitute Form 3520-A. If the required Form 3520-A is not submitted on time and there is no extension, the IRS may issue a CP15 notice if it catches the problem. The CP15 notice is what triggers the penalty assessment, even when the trustee was responsible for filing.

What Are the Form 3520 Penalties and 3520-A Penalties in 2026?

After a CP15 notice triggers the penalty assessment, the initial penalty under section 6677 for trust transfer or distribution failures is the greater of $10,000 or 35% of the gross value of the property transferred or distribution received; for a Form 3520-A failure, the greater of $10,000 or 5% of the gross value of trust assets treated as owned by the U.S. person. Continuation penalties add $10,000 per 30-day period if the failure continues 90 days past an IRS notice. Under section 6039F, a 5% per month penalty, capped at 25%, applies to reportable foreign gifts or bequests. Classification matters: a gift from a foreign trust may be a reportable distribution instead, see our guide to IRS Form 3520 and foreign gifts.

When to File Form 3520: Due Dates, Extensions, and Expatriate Rules

For a calendar-year individual, Form 3520 is generally due April 15 (June 15 with the automatic two-month expatriate extension), or October 15 with an income tax extension. Form 3520-A is due the 15th day of the third month after the trust's tax year (March 15 for calendar-year trusts), extended only via Form 7004 on the trust's EIN.

Form 3520 Mailing Address: Where to Send a Paper Filing

The instructions generally direct taxpayers to mail these forms to: Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409. Confirm the address in the latest instructions, use trackable delivery, and keep proof of mailing.

How to Protect Yourself: A Step-by-Step Form 3520 Penalty Defense Process

1. Determine the exact reporting obligation — trust, gift, or 3520-A issue; classification is not automatic. See our Form 3520-A compliance guide.
2. File a complete, accurate delinquent return — with all required statements and valuation support.
3. Prepare a detailed reasonable-cause statement — what happened, why it was missed, why it was not willful neglect, how it was fixed.
4. Gather supporting documentation — trust instruments, trustee correspondence, valuation records, proof of correction.
5. Respond carefully to any IRS notice — abatement, protest, and appeal paths differ, as our penalty appeal guide explains.
6. Consider counsel-led representation. Attorney-client privilege, once an engagement letter is signed, can be critical.

Why Form 3520 Penalties Are Frequently Defensible but Require Careful Documentation

A Form 3520 penalty is not the final word: reasonable cause and the absence of willful neglect are potential grounds for relief, and pre-assessment review lets you present an explanation first. Success requires more than claiming unfamiliarity. The facts must form a legal argument, as detailed in IRM 20.1.9 and the LB&I unit on Form 3520/3520-A penalties.

Form 3520 Penalty Help for Your Specific Situation

If you received an IRS notice, missed a Form 3520 filing, or are unsure whether a gift or trust transaction was reportable, get a professional review. DON'T KNOW WHERE TO START? We would be pleased to discuss what matters to you: this is a confidential call. Contact the Law Offices of Jason R. Kovan to discuss your circumstances with counsel focused on Form 3520 and 3520-A penalty appeals.

General education, not legal or tax advice. Law and IRS procedures change; review your situation against current guidance.