updated 2:57 PM CEST, Sep 21, 2023

IRS Assoc Chief Counsel's office reported investigating alleged erroneous Form 3520-A penalties

A months-long campaign aimed at calling attention to allegedly erroneous and disproportionate penalty notices that the U.S. Internal Revenue Service had been issuing, spearheaded by a Minnesota-based certified public accountant who bravely came forward to detail how five of his overseas clients had been hit with such notices, appears to have at last begun to have had an effect.

Gary W. CarterAccording to that CPA, Gary W. Carter, pictured left, "the IRS Office of Associate Chief Counsel (International) has agreed to investigate" the alleged campaign targeting foreign trust owners who, in fact, had actually filed their "Substitute Form 3520-A" within the required time frame for doing so. 

Carter revealed this development yesterday in a posting on the TaxConnections.com, where, as reported here in July, his original piece on the matter first appeared. 

Carter told the American Expat Financial News Journal on Wednesday that he was unable to say more than the general fact that "the IRS has agreed to investigate 3520-A penalty notices that may have been sent to taxpayers who should not have received them", and that it is scheduled to meet with a professional body representing American tax preparers in January.

In the meantime, Carter added, anyone who has received a 3520-A notice and believes they shouldn't have should contact him, and otherwise endeavor to provide the IRS with details of the cases they say are in error. He is distributing a special one-page document which those who claim they were issued penalty notices in error should fill out and send to the IRS, along with copies of certain relevevant documents, such as their Form 3520-A Penalty Notice, the first page of their Form 3520, their Substitute Form 3520-A, and proof of their extension, if they have it. 

'US$10,000 penalties' 

In his original piece for TaxConnections in July, Carter noted that the scale of penalties involved when taxpayers are found to have failed to file their Substitute Form 3520-As – typically US$10,000 – is such that few taxpayers who genuinely did comply with the rules could afford not to protest. And even if they did make a minor error in their filing, it remains an eye-watering amount for most people. 

In July, Carter's original piece on the matter detailed the "Groundhog Day" quality of having one after another of his overseas clients coming to him in a panic after being notified by the IRS that they owed huge penalty fines.

"At the time I'm writing this, four months after submitting a second letter of protest, we are still waiting for a response from the IRS," he wrote.

"In the meantime, four additional clients of ours have received the exact same penalty letter, under the exact same circumstances.

"We are in the process of protesting all of these penalties, but have yet to resolve any of them.

"In such a high stakes game, created by outrageous penalties imposed by Congress for a late-filed information return, it seems that either Congress or the IRS would make it perfectly clear, to both IRS personnel and to taxpayers, when a 'substitute' Form 3520-A is due.

"However, neither the due date for this form, nor the means of extending the due date, is mentioned in the Form 3520 instructions."

Carter then went on to suggest that the penalty notice campaign might have been intended as a money-raiser for the IRS.

"If our small client base has received five of these penalty notices, imagine how many thousands of notices have been mailed," he wrote.

"Imagine how many taxpayers have paid this bogus penalty, of US$10,000, just to get the IRS off their backs."

Carter explained that he was going public with his experiences involving clients who had been receiving these huge penalty notices in order to help other accountants and individuals who might unwittingly also fall foul of the IRS's lack of clarity and uncompromising approach. 

Carter said he is inviting individual taxpayers, as well as tax practitioners who are interested in having their case or cases reviewed as part of the campaign he has been overseeing, to contact him at This email address is being protected from spambots. You need JavaScript enabled to view it.

Among those praising Carter for his efforts on behalf of those who have been hit with Form 3520-A penalty notices was John Richardson, the Toronto-based lawyer and American expat campaigner. "Gary Carter and [TaxConnections.com publisher] Kat Jennings deserve special thanks for this!" he tweeted, hours after Carter's TaxConnections.com post appeared.

"Whether you were directly affected or not, their work should be recognized!"