In November 2020, the IRS quietly made subtle changes to the Delinquent International Information Return Submission Procedures. This popular taxpayer-friendly process allows taxpayers that are behind on foreign reporting to come forward and become compliant, while avoiding the significant penalties associated with these forms. Foreign reporting could be reporting of foreign financial assets, related party transactions between related entities, ownership of foreign corporations, disregarded entities or partnerships, or interests as owner or beneficiary of a foreign trust. A submission under these procedures could be made as long as the taxpayer is able to submit a reasonable cause statement explaining why the returns are late, and that they have not been contacted by the IRS or are under examination for these forms.
The change is that the burden of proof has shifted further to the taxpayer. Previously, a taxpayer could submit the amended returns or new submissions with the reasonable cause statement attached. Unless there was a question or issue with the submission, they would not be penalized or contacted by the IRS. Now according to the IRS, “During processing of the delinquent information return, 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 takeaway here is that the IRS is now likely to levy the penalty regardless of whether the reasonable cause statement has been submitted with the filing. Then it is up to the taxpayer to dispute and request abatement. Given the short staffing and other challenges facing the IRS, many cases have taken up to one year to resolve with significant commitment of time for correspondence.
While these procedures may still be the best option to get onside with tax compliance, strong consideration should be given to the other programs available depending on the facts and circumstances. These changes are a signal that the IRS is continuing the process of narrowing the options available to come forward on a penalty-free basis. Coming forward through a formal IRS process is still the most effective way to get onside, as “silent” disclosures or submissions attract penalties to the fullest extent.
The time to come forward on these submissions is now. Our cross-border experts can provide you a complimentary consultation on the filing requirements for your business or personal tax filings. For more information, please contact David J. Lever, CPA at dlever@tsacpa.com or by phone at (716) 633-1373.
