November 09, 2020

By Joshua Ashman, CPA & Nathan Mintz, Esq.

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IRS Quietly Ends Delinquent International Information Return Submission Procedures (DIIRSP) Program

In a move that didn't receive much attention in the press, the IRS this week quietly dismantled one of its tax amnesty programs related to international tax reporting.

Changes to the DIIRSP webpage essentially mean that filing an international form late with the IRS will be treated no differently than the filing of any late return.

The DIIRSP Program – Prior to Its Demise     

The former DIIRSP program offered an easy process for those who did not need to use one of the main IRS amnesty programs (such as the Streamlined Procedures) to file delinquent or amended tax returns to report and pay additional tax, but who:

  • had not filed one or more required international information returns (e.g., Form 5471 or Form 3520);
  • had “reasonable cause” for not timely filing the information returns;
  • was not under a civil examination or a criminal investigation by the IRS; and
  • had not already been contacted by the IRS about the delinquent information returns.

Under this IRS amnesty program, you could file the delinquent information return with a statement of facts establishing reasonable cause for the failure to file. If you met the above criteria, the IRS stated that it would not impose a penalty for failure to file the delinquent information returns.

Penalties for the late filing of an international form can be severe, with the typical penalty amounting to $10,000 per form per year.

End of the DIIRSP Program

This week, the IRS changed its webpage dedicated to the DIIRSP program, essentially instructing taxpayers to file delinquent international forms as they would any late return.

The revised page states that taxpayers “may” attach a reasonable cause statement, but further state that “penalties may be assessed without considering the attached reasonable cause statement. It may be necessary for taxpayers to respond to specific correspondence and submit or resubmit reasonable cause information.”

The revised page lastly states that, “information returns filed with amended returns will not be automatically subject to audit but may be selected for audit through the existing audit selection processes that are in place for any tax or information returns.”

The Takeaway for US Expats

The end of the DIIRSP signals a further clamping down by the IRS on international tax reporting. With the addition of several IRS audit campaigns dedicated to international tax reporting issues, it is more important than ever to file your expat tax return correctly, including all required international tax forms.

The IRS has given no certainty that it will maintain its tax amnesty programs on a permanent basis. In fact, with respect to the Streamlined Procedures, IRS officials have repeatedly expressed that the program will end when it feels that there’s no way a taxpayer who would want to participate couldn’t have heard about the process (rendering the taxpayer willfully delinquent by default). For this reason, if you are a delinquent taxpayer living abroad, it is critical that you consider coming clean sooner rather than later.

For now, the Streamlined Procedures remain a great option for coming clean with the IRS, but choosing the best way forward requires a careful analysis of your particular facts and circumstances.

If you are late in your U.S. tax filings, our experts at Expat Tax Professionals are available to help discuss your options and guide you through each step of the disclosure process.

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