Reasonable Cause Letter for Form 3520 Penalties: How to Win an Abatement

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.

In today’s globalized world, U.S. citizens, green card holders, dual nationals, expatriates, trust beneficiaries, trustees, and cross-border entities may face significant penalties for failing to file Form 3520 or Form 3520-A. A CP15 notice can trigger the penalty assessment even when no additional income tax was owed and the filing problem resulted from confusion, incomplete records, foreign-language documents, or an unexpected personal crisis.

A reasonable cause letter is one of the principal ways to ask the IRS to remove or reduce an international information return penalty. It is not a general apology and it does not guarantee abatement. It is a fact-specific legal explanation showing that you exercised ordinary business care and prudence but were nevertheless unable to comply on time, and that the failure was not due to willful neglect.

What a reasonable cause letter is and where it fits in the Form 3520 penalty process

A reasonable cause letter is a written statement submitted with a delinquent Form 3520 or Form 3520-A, or in response to a CP15 notice. It explains:

• What filing obligation applied;
• When the form was due;
• What prevented timely and complete filing;
• What actions you took before and after the failure; and
• Why your conduct was not willful neglect.

The IRS delinquent international information return procedures specifically recognize that taxpayers may attach a reasonable cause statement to a delinquent Form 3520 or Form 3520-A. The IRS instructs taxpayers to write “Reasonable Cause Statement attached” at the top of the first page. For these two forms, the statement is intended to be considered before the penalty is assessed, although additional IRS correspondence may still follow.

If a CP15 notice has triggered the penalty assessment, the letter becomes a post-assessment abatement request. You must follow the response instructions and deadline on the notice, such as a CP15, CP215, or other IRS correspondence. If the IRS rejects the request, further review paths depend on the penalty involved. Penalties under sections 6677 and 6039F are assessable without deficiency procedures, which means there is generally no opportunity to petition the U.S. Tax Court before payment. Review of a rejected abatement request is therefore typically pursued through the IRS Independent Office of Appeals or by paying the penalty and filing a claim for refund, rather than by a pre-payment petition to the Tax Court. Confirm the mechanics that apply to your specific notice with counsel before choosing a route.

The legal standard for reasonable cause and willful neglect under IRS guidance

The current Form 3520 instructions and Form 3520-A instructions state that no penalty will be imposed if the taxpayer demonstrates that the failure was due to reasonable cause and not willful neglect. Form 3520 and Form 3520-A penalties for foreign-trust transactions — creation, transfers, ownership, distributions and Form 3520-A filing failures — arise under Internal Revenue Code sections 6048 and 6677. Penalties relating to Part IV foreign gifts and bequests are separate: they arise under Internal Revenue Code section 6039F, not section 6677. The two regimes have different penalty mechanics and must not be conflated.

The IRS’s general framework appears in IRM 20.1.1, and the international-specific framework appears in IRM 20.1.9. The central question is whether, despite exercising the care a reasonably prudent person would exercise, you were unable to comply.

The IRS generally considers:

1. What happened and when;
2. How the event prevented compliance;
3. Whether you continued trying to comply;
4. Your compliance history; and
5. How promptly you corrected the failure after the circumstances ended.

Your obligation to comply is ongoing. A taxpayer who discovers the problem but waits many additional months before filing may weaken an otherwise reasonable explanation.

Reasonable cause is different from First Time Abatement for Forms 3520 and 3520-A

Reasonable cause is a legal standard based on the facts and circumstances of your failure. First Time Abatement (FTA) is an administrative waiver generally associated with qualifying failure-to-file, failure-to-pay, and failure-to-deposit penalties when the taxpayer has an otherwise clean compliance history.

Under the current IRM, FTA does not generally apply to Form 3520 or Form 3520-A. IRM 20.1.1.3.3.2.1 specifically lists both forms among returns excluded from the FTA waiver because they are generally event-based or filed once or infrequently. Therefore, a taxpayer should not assume that a first penalty, clean filing history, or first request for relief will produce automatic abatement.

The more direct route is a reasonable cause request under section 6677, supported by a complete delinquent return and credible evidence. A first-time failure may still help demonstrate good compliance history, but it is not reasonable cause by itself.

Facts that can materially strengthen a reasonable cause letter

The strongest letters connect a specific event to the filing failure and document the taxpayer’s efforts to comply.

Reliance on professional advice. Saying “my accountant did not tell me” is usually insufficient. The taxpayer remains responsible for filing. However, reliance may be relevant when a qualified adviser was given all material facts, the issue was technically complex, the adviser provided specific advice about the reporting obligation, and the taxpayer reasonably relied on that advice. The Form 3520-A instructions also make clear that a U.S. owner remains responsible for ensuring required reporting occurs.

Serious illness, death, or unavoidable absence. IRM 20.1.1 recognizes that serious illness or death involving the taxpayer or an immediate family member may support relief when the event directly prevented compliance. The letter should identify the relationship, dates, duration, severity, effect on the responsible person, and the date compliance resumed.

Unavailable or foreign-language records. Missing trust statements, inaccessible foreign financial records, or records held abroad may support reasonable cause in some circumstances. The explanation must show why the documents were necessary, why they were unavailable, what requests were made, whether alternative sources or estimates were considered, and how quickly the return was filed once the records became available.

Postal, government, or other service failures. A documented mailing failure, government office closure, or similar disruption may be relevant. The taxpayer should establish the expected mailing or delivery date, the failure that occurred, and the corrective steps taken. A bare assertion that documents were lost in the mail is unlikely to be persuasive without proof.

Reasonable misunderstanding of a complex obligation. International trust reporting is highly technical. A misunderstanding may be relevant when the taxpayer made a good-faith effort to determine the obligation, had limited prior exposure to U.S. international reporting, and acted promptly after discovering the requirement. Mere ignorance of the law, forgetfulness, or an unsubstantiated claim of confusion generally will not be enough.

What usually does not establish reasonable cause

The following explanations are commonly weak unless supported by additional facts:

• “I did not know about Form 3520.”
• “My accountant did not tell me.”
• “The foreign trustee did not provide the information.”
• “The return was eventually filed.”
• “The foreign country restricted disclosure.”
• “This was my first mistake.”
• “The penalty is financially difficult to pay.”

The Form 3520 and Form 3520-A instructions specifically state that foreign-country penalties, a foreign fiduciary’s reluctance or inability to provide information, and trust-instrument restrictions generally do not constitute reasonable cause. Filing late without explaining why the failure occurred also does not establish relief.

How to organize the letter and supporting evidence

A persuasive reasonable cause letter should be easy for the IRS to review. Organize it in the following order:

1. Identify the taxpayer, tax year, form, penalty reference, and IRS notice.
2. State the relief requested: full abatement, or partial abatement if appropriate.
3. Describe the filing obligation and the original due date.
4. Provide a chronological timeline of the relevant events.
5. Explain how those events prevented timely filing.
6. Describe efforts to obtain advice, records, extensions, or alternative information.
7. Explain corrective action and current compliance.
8. Include a declaration that the statement is made under penalties of perjury.
9. Attach labeled exhibits and retain proof of delivery.

Useful exhibits may include medical records, death certificates, foreign-language correspondence with translations, trustee communications, adviser engagement letters, emails requesting advice, postal records, government notices, trust documents, valuation records, and proof of timely corrective filing.

The 2026 context: delinquent procedures and Notice 2026-63

In 2026, delinquent Forms 3520 and 3520-A should generally be filed under their specific instructions rather than attached to an amended income tax return. The reasonable cause statement should accompany each applicable delinquent form.

Notice 2026-63 provides deadline postponement rules for certain affected taxpayers connected with the State of Israel, the West Bank, or Gaza. However, it is not a blanket Form 3520 or Form 3520-A penalty waiver. It also should not be treated as an automatic postponement for every international information return. If you believe the notice applies to your filing, confirm eligibility, the covered act, and the applicable deadline with counsel before relying on it.

For an already-delinquent Form 3520 or Form 3520-A, the reasonable cause route remains important. Explain the Israel-related facts, dates, location of records or preparers, and connection between the qualifying circumstances and the late filing. Do not assume that Notice 2026-63 eliminates the need for a reasonable cause statement.

Why attorney-client privilege matters in a penalty abatement request

A Form 3520 or Form 3520-A penalty case can involve sensitive information about foreign trusts, inheritances, family relationships, medical events, financial records, and prior reporting decisions. Once an engagement letter is signed, communications with a lawyer for the purpose of obtaining legal advice may be protected by attorney-client privilege, subject to the facts and applicable privilege rules.

A general accountant does not automatically provide the same legal protection. An accountant’s work papers and communications may be discoverable, particularly when the accountant is acting only as a return preparer rather than assisting an attorney in providing legal advice. Privilege also does not protect the underlying facts or pre-existing documents; it protects qualifying confidential communications.

A reasonable cause letter is strongest when it is accurate, chronological, evidence-based, and tailored to the specific penalty. No outcome can be guaranteed, but careful preparation gives the IRS a clear basis to evaluate the request under IRC section 6677 or, for foreign gift penalties, section 6039F, together with IRM 20.1.1 and IRM 20.1.9.

If a CP15 notice has triggered a Form 3520 or Form 3520-A penalty assessment, review the notice immediately and preserve every deadline. The IRS Form 3520 and Form 3520-A penalty appeal and abatement procedures may help you understand the next procedural step, while the firm’s Form 3520 and Form 3520-A tax penalty guide provides additional background.

If a CP15 notice has triggered a Form 3520 or Form 3520-A penalty assessment and you have not been able to resolve it, the firm can review the notice, the filing history and the evidence before deciding whether a reasonable cause position is worth pursuing. No outcome is guaranteed, and a review may conclude that no further action is warranted. Contact the Law Offices of Jason R. Kovan for a confidential assessment.