IRS Letter 6355C: Reporting Foreign Income Correctly

Last updated 11/12/2024 by

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Summary:

The IRS issues Letter 6355C to notify taxpayers of underreported foreign passive income and the failure to file Form 8938, which is required to report certain foreign financial assets. This letter indicates a need for immediate action to avoid further penalties and to comply with IRS reporting requirements. Understanding the steps to address Letter 6355C is essential to resolve the issue efficiently and meet tax compliance standards.

Receiving a notice from the IRS can be unnerving, especially if it’s about foreign income or assets. Letter 6355C alerts taxpayers to potential issues with underreporting passive income from foreign assets or failing to submit Form 8938, the “Statement of Specified Foreign Financial Assets.” This letter requires taxpayers to take action quickly to correct underreporting and avoid penalties. In this article, we’ll break down the purpose of Letter 6355C, explain what steps you need to take, and provide tips to resolve it effectively and maintain compliance with IRS requirements.

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What is IRS letter 6355c?

The IRS issues Letter 6355C to inform taxpayers that they may have underreported income from foreign sources or neglected to file the necessary Form 8938. This form is essential for disclosing certain foreign financial assets, and failing to file it accurately can result in penalties. Here’s an in-depth look at why Letter 6355C might appear in your mailbox and what it entails.

Purpose of IRS letter 6355c

Letter 6355C addresses the reporting of passive income from foreign assets—typically, income like interest, dividends, or capital gains that aren’t actively earned. It also flags situations where taxpayers fail to disclose these assets on Form 8938. The IRS requires this disclosure to track assets held outside the United States and to ensure compliance with tax obligations on foreign income.

What triggers a letter 6355c?

A taxpayer might receive Letter 6355C for several reasons, including:

Undisclosed foreign assets: The IRS may identify foreign accounts or assets that a taxpayer hasn’t reported on Form 8938.
Failure to file Form 8938: Not filing Form 8938 or inaccurately reporting foreign assets can lead to this letter.
Underreported foreign passive income: Income from foreign assets not reported on the taxpayer’s annual return may trigger a 6355C notice.

The IRS can obtain information on foreign financial assets through international agreements and automatic information exchanges, making it challenging for individuals to hide foreign income.

Pro Tip

Consult a tax professional if you’re unsure about reporting foreign assets. They can help you navigate complex reporting requirements and avoid potential penalties from misfiled or incomplete forms.

How IRS letter 6355c affects you

Letter 6355C is not merely a notification but a call to action. Ignoring or delaying a response can lead to severe consequences, including substantial fines and increased scrutiny from the IRS.

Consequences of ignoring the notice

Failing to respond to Letter 6355C promptly may lead to:

Penalties: The IRS may impose significant penalties for underreported income and unfiled Form 8938.
Interest charges: Interest may accrue on unpaid taxes resulting from underreported income, compounding the amount owed.
Additional scrutiny: Ignoring the notice can lead to further audits, which may result in penalties beyond those associated with foreign asset reporting.

If you act quickly, however, the IRS may offer options to resolve the issue and potentially reduce penalties, especially if the underreporting was unintentional.

Understanding the penalties associated with letter 6355c

Penalties for failing to disclose foreign financial assets are substantial and can add up quickly. Common penalties include:

A $10,000 penalty for failing to file Form 8938 on time.
An additional $10,000 penalty for every 30 days after the taxpayer is notified of their failure to file, up to $50,000.
Other penalties may apply if the taxpayer fails to report income from foreign assets on their annual return.

Understanding these potential penalties underscores the importance of addressing the notice promptly to avoid further financial impacts.

Pro Tip

Set up IRS account alerts online to get real-time notifications on any changes to your tax return or account. This helps you stay updated on adjustments and due dates.

Steps to take when you receive IRS letter 6355c

Once you receive Letter 6355C, responding promptly and thoroughly is crucial. Here’s a step-by-step guide to help you address the notice effectively.

Review the details in letter 6355c

Carefully examine the contents of the letter to understand what specifically the IRS has identified. Note the following:

The income or assets the IRS believes are underreported.
Any discrepancies between the IRS’s information and your filed tax return.
Instructions for providing additional information or correcting the issue.

Gathering this information will help you understand the scope of the issue and what documentation you may need to submit.

Confirm your foreign income and assets

Review your foreign accounts, financial statements, and other documents to confirm the income and assets the IRS has noted. Ensure that you have accurately reported:

Interest and dividends earned from foreign sources.
Capital gains on assets held in foreign accounts.
Any foreign assets that should have been disclosed on Form 8938.

Double-checking these details is essential to avoid underreporting or accidental omissions.

File or amend Form 8938 if needed

If you failed to file Form 8938 or need to correct it, complete this form as soon as possible. Form 8938 requires you to provide detailed information about your foreign financial accounts, including:

The financial institution or issuer holding the account or asset.
The maximum value of the asset during the tax year.
Income generated from the asset, if applicable.

Ensure that all information is accurate, as the IRS may verify it against records from foreign financial institutions.

Contact the IRS if further clarification is needed

If you are uncertain about certain aspects of the notice, consider contacting the IRS for clarification. Have the following information ready:

Your taxpayer identification number and a copy of Letter 6355C.
Documentation related to the income or assets in question.
Any prior correspondence with the IRS regarding foreign income.

The IRS may provide additional guidance or recommend steps for resolving the issue efficiently.

Pro Tip

Keep detailed records of all foreign assets, income, and financial statements, even if you believe they fall below reporting thresholds. Having these records on hand can simplify compliance and help you address any IRS inquiries or notices.

How to respond to IRS letter 6355c

Steps for a written response to the IRS

If the letter requests a formal response, follow these steps to address the issue comprehensively:

Write a clear explanation addressing each point mentioned in Letter 6355C. Detail why you may have underreported income or failed to file Form 8938 if that’s the case.
Include copies of all relevant financial statements and supporting documentation.
Submit a completed Form 8938 if needed, or an amended tax return if income corrections are required.

Following the IRS instructions precisely will help to resolve the issue efficiently and demonstrate your cooperation.

Seeking help from a tax professional

Resolving IRS Letter 6355C can be complex, especially if significant foreign assets or multiple sources of passive income are involved. Working with a tax professional can help you:

Understand IRS foreign income reporting requirements more clearly.
Prepare an accurate Form 8938, if needed.
Ensure your response includes all relevant information and avoids penalties where possible.

Professionals such as certified public accountants (CPAs) or tax attorneys can offer valuable guidance through this process.

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Frequently asked questions

What specific foreign assets must be reported on form 8938?

Form 8938 requires taxpayers to disclose specified foreign financial assets if they exceed certain value thresholds. These assets typically include foreign bank accounts, foreign stocks, bonds issued by foreign entities, foreign mutual funds, and foreign pension plans. The exact reporting thresholds vary based on filing status and whether the taxpayer lives in the United States or abroad. For most taxpayers residing in the U.S., the threshold is $50,000 at year-end or $75,000 at any time during the year for single filers. Those living abroad may have higher thresholds.

What is the difference between form 8938 and FBAR (finCEN form 114)?

While both Form 8938 and FBAR (Foreign Bank Account Report) require the reporting of foreign assets, they serve different purposes. Form 8938 is an IRS form required under the Foreign Account Tax Compliance Act (FATCA) and must be submitted with your tax return if your foreign assets exceed specific thresholds. FBAR, filed with the Financial Crimes Enforcement Network (FinCEN), requires reporting if the aggregate value of foreign accounts exceeds $10,000 at any time during the year. It’s important to note that some foreign accounts may need to be reported on both forms.

Will filing form 8938 protect me from IRS penalties?

Filing Form 8938 accurately and on time helps you comply with reporting requirements and reduces your risk of IRS penalties. However, simply filing the form does not eliminate the potential for penalties if the IRS discovers unreported foreign income or finds errors in your filing. Penalties can still apply if foreign income from these assets was underreported or omitted from your tax return. Accurate and complete filing is essential for penalty protection.

How do I correct an error on a previously filed form 8938?

If you discover an error on a previously filed Form 8938, you can correct it by filing an amended tax return (Form 1040-X) along with a corrected Form 8938. In your amended filing, clearly explain the changes and provide supporting documentation if needed. Submit your amended return according to IRS instructions, and make sure to address any discrepancies to avoid penalties. Consulting a tax professional may help to ensure accuracy and compliance in the amended filing.

What should I do if I can’t pay the taxes owed on underreported foreign income?

If you owe additional taxes due to underreported foreign income and can’t pay the full amount, the IRS offers payment options, including installment agreements and short-term extensions. You may apply for an installment plan through the IRS website or by contacting the IRS directly. While interest and some penalties may still apply, these payment plans can help you manage the tax liability more effectively. Promptly addressing the issue and arranging a payment plan can prevent further enforcement actions from the IRS.

Need help understanding other IRS letters and notices? Visit our comprehensive guide to IRS Letters and Notices or search for the document you received in the table below.

IRS Letter or Notice Number

Notice Description

CP01	The IRS verified your claim of identity theft and will monitor your account.
CP01H	The IRS received a tax return with a social security number that belongs to a dead person.
CP02H	Money is due on an amended return based on a grant received due to Hurricane Katrina, Rita, or Wilma.
CP03C	You received the First-Time Homebuyer Credit for a house you purchased.
CP04	You may be eligible for tax deferment because either you or a spouse served in a combat zone, a qualified contingency operation, or a hazardous duty station during the tax year specified on your notice.
CP08	You may be entitled to additional money due to the Additional Child Tax Credit.
CP10	Your tax return changed due to a miscalculation, and the refund you wanted to apply to an estimated tax payment has changed.
CP10A	Your tax return changed due to a miscalculation of the Earned Income Credit, and the refund you wanted to apply to an estimated tax payment has changed.
CP11	You owe money because the IRS amended your return due to a miscalculation.
CP11A	Your tax return changed due to a miscalculation of the Earned Income Credit, and the refund you wanted to apply to an estimated tax payment also changed.
CP11M	Your tax return changed due to a miscalculation of the Making Work Pay and Government Retiree Credit, and the refund you wanted to apply to an estimated tax payment has changed.
CP12	You are due a bigger refund because the IRS corrected one or more mistakes on your tax return.
CP12A	The IRS made changes to correct the Earned Income Credit (EIC) claimed on your tax return.
CP12E or CP12F	The IRS corrected a miscalculation on your return.
CP12M	The IRS made changes to the computation of the Making Work Pay and/or Government Retiree Credits on your return.
CP12R	The IRS made changes to the computation of the Rebate Recovery Credit on your return.
CP13	The IRS made changes to your return due to a miscalculation. There is no refund or amount due. Your balance is zero.
CP13A	The IRS made changes to your return due to a miscalculation of the Earned Income Credit. There is no refund or amount due. Your balance is zero.
CP13M	The IRS made changes to your return due to a miscalculation of the Making Work Pay credit or the Government Retiree Credit. There is no refund or amount due. Your balance is zero.
CP13R	The IRS made changes to your return due to a miscalculation of the Recovery Rebate Credit. There is no refund or amount due. Your balance is zero.
CP14	You owe money on unpaid taxes.
CP16	The IRS made changes to your return due to a miscalculation. The refund you were due was applied to other tax debts.
CP21A	You owe money due to the changes you requested that the IRS make on your tax returns.
CP21B	You are due a refund due to the changes you requested that the IRS make on your tax returns. The money should arrive within 2 to 3 weeks.
CP21C	The IRS made the requested changes to your tax return. You will not receive a refund, and there is no tax due. Your balance is zero.
CP21E	As a result of your recent audit, the IRS made changes to your tax return, and you owe money as a result of those changes.
CP21I	The IRS made changes to your tax return relating to the Individual Retirement Arrangement (IRA) taxes. You owe money due to the changes.
CP22A	The IRS made the changes you requested, and you owe money as a result.
CP22E	As a result of your recent audit, the IRS changed your tax return, and you now owe money.
CP22I	The IRS made changes to your tax return relating to the Individual Retirement Arrangement (IRA) taxes. You owe money due to the changes.
CP23	The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. You owe taxes due to these changes.
CP24	The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. This resulted in an overpayment of estimated taxes.
CP24E	The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. This resulted in an overpayment of estimated taxes.
CP25	The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. You are not due a refund, nor do you owe any money. Your balance is zero.
CP31	You need to update your address because your refund check was returned to the IRS.
CP45	The IRS was unable to apply your overpayment to your estimated tax as you requested.
CP49	The IRS used all or part of your refund to pay a tax debt.
CP53	Your refund check will be sent by mail because the IRS can’t provide your refund through direct deposit.
CP57	The bank declined your payment, so the IRS was unable to draft funds from your bank account.
CP71	A reminder of the amount you owe in tax, penalty, and interest.
CP71A	A reminder of the amount you owe in tax, penalty, and interest.
CP71C	A reminder of the amount you owe in tax, penalty, and interest.
CP71D	A reminder of the amount you owe in tax, penalty, and interest.
CP88	The IRS is holding your refund because you haven't filed one or more tax returns, and it believes you will owe tax.
CP90	The IRS is notifying you of its intent to levy certain assets for unpaid taxes. You have the right to dispute the levy in a Collection Due Process hearing.
CP91	The IRS will levy up to 15% of your social security benefits for unpaid taxes.
CP120	The IRS needs documentation of your tax-exempt status.
CP120A	Your organization’s tax-exempt status has been revoked because it failed to file a Form 990 series return for three consecutive years.
CP130	You may no longer need to pay the Alternative Minimum Tax (AMT) because your tax return filing requirements changed.
CP152	The IRS received your return.
CP153	The IRS will send your refund by mail because your direct deposit did not go through.
CP161	You have an unpaid balance due to the IRS.
CP166	Your monthly payment to the IRS did not go through due to insufficient funds in your bank account.
CP178	You may no longer owe excise tax because your tax return filing requirements changed.
CP231	You need to update your address because your refund was returned to the IRS.
CP259	You did not file the business tax return identified in the notice.
CP259A	You should have filed these forms but did not – Form 990/990-EZ, Return of Organization Exempt From Income Tax, or Form 990-N (e-Postcard).
CP259B	The IRS requires you to file these forms but did not – Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation.
CP259C	The IRS believes that you are a private foundation, but did not file the required Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation.
CP259D	You must file this form, but you did not – Form 990-T, Exempt Organization Business Income Tax Return.
CP259E	You should have filed this form, but you did not – Form 990-N (e-Postcard) or Form 990/990-EZ, Return of Organization Exempt From Income Tax.
CP259F	The IRS requires you to file this form but did not – Form 5227, Split-Interest Trust Information Return.
CP259G	The IRS requires you to file this form, but you didn’t – Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations.
CP259H	As a tax-exempt political organization, you must file this form, but you did not – Form 990/990-EZ, Return of Organization Exempt From Income Tax.
CP276A	You submitted your tax liability schedule incorrectly. The IRS typically charges a Federal Tax Deposit (FTD) penalty for this but did not this time.
CP276B	The IRS did not receive the correct amount of tax deposits. It normally charges a Federal Tax Deposit (FTD) penalty but did not this time.
CP297	The IRS is notifying you of its intent to levy certain assets for unpaid taxes. You have the right to dispute the levy at a Collection Due Process hearing.
CP297A	The IRS has levied your assets for unpaid taxes. You have the right to dispute the levy at a Collection Due Process hearing.
CP298	The IRS notifying you of its intent to levy up to 15% of your social security benefits for unpaid taxes.
CP501	You have a balance due on one of your tax accounts.
CP503	You have an unpaid balance on one of your accounts, and the IRS has not heard from you.
CP504	You have an unpaid amount due on your account. If you do not pay immediately, the IRS will levy your state income tax refund to apply it to the amount you owe.
CP504B	You have an unpaid amount due on your account. If you do not pay immediately, the IRS will levy certain property or rights to property to apply it to the amount you owe.
CP521	A reminder that you have an installment agreement payment due.
CP523	You have defaulted on your payment agreement. Therefore the IRS is terminating the agreement and will levy your assets.
CP601	Usted tiene un saldo pendiente de pago (dinero que le debe al IRS) en una de sus cuentas contributivas.
CP603	No hemos recibido respuesta de parte de usted y todavía tiene un saldo sin pagar en una de sus cuentas contributivas.
CP604	Usted tiene un saldo sin pagar en su cuenta. De no pagar esta cantidad inmediatemente, el IRS embargará cualquier reembolso de impuestos estatales al que tenga derecho y aplicarlo al pago de su deuda.
CP604B	Usted tiene un saldo sin pagar en su cuenta. De no pagar esta cantidad inmediatemente, el IRS embargará ciertas propiedades o derechos de propiedad y lo aplicará al pago de su deuda.
CP621	Este aviso es para notificarle que usted tiene un plan de pagos a plazos vencido. Por favor, envíe el pago inmediatamente.
CP623	Este aviso es para informarle nuestra intención de cancelar su plan de pagos a plazos y confiscar (embargar) sus bienes. Usted incumplió en su acuerdo.
CP711	Nosotros realizamos cambios a su planilla debido a que entendemos que hubo un cálculo erróneo. Como resultado de estos cambios, usted adeuda dinero por sus contribuciones.
CP721	Hicimos el(los) cambio(s) que usted solicitó a su declaración de impuestos para el año tributario que aparece en su aviso. Como resultado de éste(estos) cambio(s) usted debe dinero en sus impuestos.
CP722	Hicimos el(los) cambio(s) que usted solicitó a su declaración de impuestos para el año tributario que aparece en su aviso. Como resultado de éste(estos) cambio(s) usted debe dinero en sus impuestos.
CP771	Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP772	Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP773	Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP774	Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP959	Usted no radicó su planilla de contribución de negocios identificada en este aviso.
CP2000	The income or payment information on file doesn’t match your tax return. The discrepancy may result in an increase or decrease in your tax due.
CP3219A	The IRS has received information that is different from what you reported on your tax return. This may result in an increase or decrease in your tax.
CP3219N	The IRS didn’t receive your tax return, so it calculated your return based on the information received from employers, financial institutions, and others. If you want to challenge the proposed tax, you have 90 days from the date of this notice. If you are outside the country, you have 150 days.
Letter 0012C	The IRS needs additional information to process your tax return.
Letter 0484C	The IRS wants a completed
Letter 0525	Updates you on proposed changes after an IRS examination. Any changes are explained and details the refund due or taxes owed.
Letter 531	IRS Notice of Deficiency. The information the IRS received about you was different from what you reported on your return.
Letter 0668D(LP 68)	The IRS released their levy.
Letter 0549C	Your tax bill was paid.
Letter 0681C	The IRS accepted your payment proposal. However, this is not a formal Installment Agreement.
Letter 0757C	You did not adhere to the terms of your Installment Agreement.
Letter LT 11	The IRS plans to seize your property or rights to property.
Letter 1058	The IRS has not received your payment. It plans to seize your property or rights to property.
Letter 1615 (LT 18)	You must respond to the IRS within 10 days of this notice regarding past due tax returns.
Letter 1737 (LT 27)	Complete and sign Form 433F, Collection Information Statement.
Letter 1961C	Your application for a Direct Debit Installment Agreement was declined. It explains why and what you need to do to qualify.
Letter 1962C	Your application for a
Letter 2050 (LT 16)	The IRS is trying to collect unpaid taxes from you from returns that have been filed or from returns that have not been filed.
Letter 2257C	The IRS is providing the payoff amount that you requested.
Letter 226-J	An IRS letter to large employers notifying them that they may be liable for an Employer Shared Responsibility Payment (ESRP).
Letter 2271C	A request for an Installment Agreement has been approved. It explains the fees and how to qualify for a Low Income Fee Reduction. The letter may also request missing information.
Letter 2272C	An IRS letter explaining why your request to pay the balance due in installments was declined.
Letter 2273C	A confirmation letter of your request to pay the balance due in installments. It contained the amount to pay, fees charged, and where to send payment. Instructions on how to apply for the Low Income Fee Reduction included.
Letter 2318C	A response to a request to pay taxes due to payroll deductions. It also explains the fees that are charged.
Letter 2357C	The IRS is admitting that it did not send you the balance due notices that it should have.
Letter 2603C	The IRS accepted your installment agreement. The IRS will file a Notice of Federal Tax Lien on your personal property.
Letter 2604C	The IRS has accepted your request for installment payments. This IRS letter provides the monthly payment, the address where to send it, and the fees charged. The letter also provides instructions on how to apply for the Low Income Fee Reduction.
Letter 2761C	The IRS is requesting your combat zone service dates to ensure that it provides you with the special provisions and protection of the combat zone deferment. Copies of military orders or other documentation to support your time served may be requested. Civilians working in support of the Armed Forces may be required to provide a Letter of Authorization or a letter from their employer.
Letter 2789C	An annual reminder notice, as required by law, of the balance due to the IRS. It explains that penalties and interest continue to accrue until the balance is fully paid.
Letter 2840C	Confirms your Installment Agreement request and includes the payment amount and due date. This IRS letter explains the fees charged for paying monthly and explains how to apply for the Low Income Fee Reduction (if you qualify).
Letter 3030C	Provides an explanation of the tax, penalty, and interest still due on your account.
Letter 3127C	A confirmation of your request to make a change to your Installment Agreement. This IRS letter explains the fees for the change. Changes can be to the payment amount or due date, or it can include additional liabilities.
Letter 3174	A reminder of taxes due after the IRS has sent a Notice of Intent to Levy.
Letter 3217C	The IRS has accepted your request to pay the balance in installments. This IRS letter provides your payment amount, the due date, and fees charged. The letter also provides instructions on applying for the Low Income Fee Reduction (if you qualify).
Letter 3228 (LT 39)	A request to pay the balance due within 10 days using the envelope provided.
Letter 3500	The IRS has received your documents, and it needs additional time to review them.
Letter 3572	Your Federal Income Tax Return has been selected for examination. The IRS auditor requests that you call to schedule an audit appointment.
Letter 4883C	The IRS received your federal income tax return but needs more information to verify your identity in order to process your tax return accurately.
Letter 4903 (LT 26)	You must file your tax returns immediately. The IRS has previously contacted you, but it did not receive a response.
Letter LP 47	The IRS is trying to locate the person identified in the letter and is requesting that you provide their new address.
Letter LP 59	The IRS has not received a response to the notice of levy it previously sent.
Audit Letter 2205	The IRS manages audits either by mail or through an in-person interview to review your records. The interview may be at an IRS office (office audit) or the taxpayer’s home, place of business, or accountant’s office (field audit).
Letter 915	You recently underwent an audit, and the IRS informs you that you now owe taxes.

Key takeaways

Letter 6355C is sent when the IRS identifies underreported foreign passive income or unfiled Form 8938.
Failing to respond may result in penalties, additional interest, or potential audits.
Form 8938 requires taxpayers to disclose foreign financial assets, including income from foreign sources.
Responding accurately and promptly can help minimize penalties and resolve the issue.

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