Delinquent International Information Submission Procedures Removed by IRS

Arin V., EA , MBA

Arin is an Enrolled Agent (EA), authorized to represent taxpayers in front of the IRS, and holds a BA and MBA (Management) degree from California State University, Northridge.

In an unfortunate turn of events for Americans overseas, as well as U.S. residents with foreign financial assets and/or ownership in foreign trusts and corporations, the IRS has quietly canceled one of the programs the aforementioned groups of people used to take advantage of to submit delinquent international information returns and avoid penalties.

The Delinquent International Information Return Submission Procedures (DIIRSP), which allowed Americans to submit a statement of specified foreign financial assets (Form 8938), foreign trust returns (Forms 3520/3520A), and foreign corporation information returns (Form 5471) without paying penalties, is no longer available. Instead, taxpayers are encouraged to submit these information returns along with a reasonable cause statement, through the existing, regular procedures. However, unlike before, penalties may be automatically assessed without regard to the reasonable cause statement, which means that penalty relief is no longer available for taxpayers who file this way.

Therefore, the only possible recourse for taxpayers who need to file delinquent international information returns without paying penalties, is the Streamlined Foreign/Domestic Offshore Procedures. However, it is anyone’s guess as to how long this program will still remain available, given the changes (and eliminations) the IRS has made to such programs in recent years. Even then, not everyone qualifies for the Streamlined Procedures, and the only other option, the Voluntary Disclosure Program (VDP), features draconian penalties that are certainly not for the faint of heart. 

If you have foreign bank accounts, are the grantor (owner) of a foreign trust, or have ownership or are a director of a foreign corporation, and you failed to file one or more information returns in the past, please contact us today to see what your options may be in terms of getting caught up with your U.S. tax reporting requirements. Indeed, given that the DIIRSP can no longer be used, expats have even fewer options than before. In these scenarios, the best way forward is swift action toward hiring a professional, thoughtful, experienced firm to review and discuss your options going forward.