Tax penalties notice and review reforms

Full Title:
Fairness in Foreign Filing Act

Summary#

This bill changes how certain tax penalties for foreign-information filings are handled. It makes many penalties assessable like taxes and requires the IRS to give advance written notice and a chance to seek an independent appeals review before assessing certain listed penalties. It also removes two due-date rules for some information returns about foreign trusts.

  • Main change: Penalties under many parts of the tax code are to be treated as assessable like taxes, with a narrow exception for penalties already collected by civil or criminal action or consistently treated that way before this law.
  • Notice and review: For a set of listed penalties (called “covered penalties”), the IRS must mail a written notice at least 60 days before assessing (120 days if the taxpayer is outside the U.S.), and the taxpayer can request an appeals review within that period. Assessment and collection are paused while the review is pending.
  • Covered penalties: The bill lists specific code sections that count as covered penalties; the bill text names those sections but does not describe each penalty in plain terms.
  • Jeopardy exception: The IRS can skip the notice and pause if it finds that collection is in jeopardy (i.e., a risk the government won’t be able to collect).
  • Foreign trusts rule change: The bill removes two specific due-date provisions added by a 2015 law, and that change starts for tax years after December 31, 2026.
  • Unclear points: The bill text does not explain in plain language what each listed code section covers, nor does it show a fiscal estimate.

What it means for you#

  • Taxpayers subject to the listed penalties: You would get a written notice before the IRS assesses certain penalties. You would have 60 days (120 days if you live outside the U.S.) to ask the IRS Independent Office of Appeals to review the proposed penalty. The IRS generally may not assess or collect that penalty while the review is pending.
  • Taxpayers living outside the U.S.: You get a longer notice and response window (120 days instead of 60).
  • Tax preparers and accountants: You may need to help clients file a timely appeals request during the notice period.
  • IRS and Appeals staff: The IRS must create procedures for mailing notices, for handling reviews, and for simplified reviews for small penalties.
  • Those filing returns about foreign trusts: Deadlines set by two specific paragraphs of a 2015 law would be removed for returns for tax years starting after 2026. The bill does not explain the practical effect of removing those paragraphs.
  • General taxpayers: If you are not involved in the specific listed penalties or foreign trust return rules, the bill probably has little direct effect on you.

Expenses#

No publicly available information.

  • The bill text does not include a fiscal note or cost estimate.
  • This could increase IRS administrative work and staff time, because the agency must (a) send extra notices, (b) handle more pre-assessment appeals reviews, and (c) write regulations and procedures. Those are likely to have some cost, but the bill does not estimate amounts.
  • Pausing assessments while reviews proceed could delay revenue collection timing. The bill suspends the statute of limitations for the assessment period while the pause is in effect and for 30 days after.
  • Repealing the two due-date provisions for foreign-trust returns could change filing or enforcement workloads; the bill does not provide details or cost estimates.

Proponents' View#

  • The bill appears intended to give taxpayers clearer notice and an earlier chance to challenge certain penalties before the IRS assesses or starts collection.
  • It appears intended to treat penalties more like taxes for assessment purposes, which may standardize collection procedures.
  • The longer notice period for people outside the U.S. appears intended to account for mailing delays and to give those taxpayers more time to respond.
  • The provision requiring regulations and simplified reviews could make low-dollar disputes easier and faster to resolve.
  • Removing the two due-date paragraphs for foreign-trust returns may be intended to simplify or change timing rules for those returns (the bill text does not state the reason).

Opponents' View#

  • One concern is that pausing assessment and collection while appeals are pending could delay enforcement and slow revenue collection.
  • The requirement for more pre-assessment notices and formal appeals could increase IRS administrative costs and workloads; the bill does not say how the agency will be funded or staffed for this.
  • The bill does not explain in plain language what each listed code section covers. That makes it harder to know how many taxpayers will be affected or how large the penalties typically are.
  • Repealing the two due-date rules for foreign-trust returns may create uncertainty about filing deadlines unless follow-up guidance is provided.
  • The jeopardy exception is included, but the bill does not define in detail when the IRS may declare collection to be in jeopardy; this could raise questions about how often the exception would be used.