A number of American taxpayers are receiving incorrect letters from the Internal Revenue Service regarding Form 3520 foreign trust declarations, according to the American Institute of CPAs.

The IRS letters relate to taxpayers’ Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, for 2010 and earlier years. They contain the threat of penalties for late or incorrect submission of the form, and are inconveniencing taxpayers who are paying professional fees to respond to the IRS, the Institute says.

It says it has “become aware of a widespread problem affecting numerous taxpayers across the country (including taxpayers in: California, Florida, Maryland, Massachusetts, New York, and Washington) as well as taxpayers in Canada who are receiving incorrect letters from the Internal Revenue Service.”

The mistakes include instructing taxpayers who don’t own foreign grantor trusts to complete line 23 of the form, whereas only owners of foreign grantor trusts need complete this section, according to a letter sent to IRS Commissioner Douglas Shulman.

“The IRS letters request that the taxpayer furnish the line 23 information to avoid a penalty under Internal Revenue Code section 6677 despite the fact that line 23 is not required to be completed,” the AICPA letter says.

The IRS has also threatened penalties for taxpayers filing Form 3520 late when it was filed on time, according to the Institute.

“We request that the IRS check into the source of our concerns and correct this systemic problem with respect to the processing of Forms 3520, and consider ceasing the issuance of these incorrect letters,” the letter says.

“In addition, we request the IRS consider providing an announcement that such erroneous letters do not require a response.  Such action will allow taxpayers to avoid incurring considerable time and expense in having their tax preparers respond to these incorrect letters.”