Tax Law Center Blog

The Delinquent International Information Return Submission Procedures are one of the four methods for taxpayers with unreported offshore accounts to become compliant.  Taxpayers who have failed to file certain international-related information returns.  It applies to all the following international-related information returns:

• Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation

• Form 3520, Annual Return to Report Transactions with Foreign Trusts & Receipt of Foreign Gifts

• Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner

• Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations

• Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business

• Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities

• Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships

• Form 8938, Statement of Specified Foreign Financial Assets

No penalties are applied if there is reasonable cause for the failure to file the information form and the IRS agrees. Reasonable Cause is a fact specific submission, which is based on each applicant’s facts and circumstances.

A taxpayer may utilize DIIRSP if the taxpayer has not filed one or more required international information returns, has reasonable cause for not timely filing the information returns, is not under civil examination or criminal investigation by the IRS and has not already been contacted by the IRS about the delinquent information returns. Taxpayers who have unreported income or unpaid tax are not precluded from filing delinquent international information returns.

Penalties may be imposed under the Delinquent International Information Return Submission Procedures if the IRS does not accept the explanation of reasonable cause. The longstanding authorities regarding what constitutes reasonable cause continue to apply, and existing procedures concerning establishing reasonable cause, including requirements to provide a statement of facts made under the penalties of perjury, continue to apply. See, for example, Treas. Reg. § 1.6038-2(k)(3), Treas. Reg. § 1.6038A-4(b), and Treas. Reg. § 301.6679-1(a)(3).

While the elements of what constitute reasonable cause are a question of law, whether those elements are present in a given case are questions of fact. Reasonable cause is not defined anywhere in the tax code. It has been defined through case law, which is summarized in IRM 20.1.1.3.2.1  “Any reason that establishes a taxpayer exercised ordinary business care and prudence but nevertheless failed to comply with the tax law may be considered for penalty relief.”

In addition to submitting the delinquent international information returns, the taxpayer must include a statement describing the circumstances that create reasonable cause for the delinquent filing. Within the reasonable cause statement, the taxpayer must certify that the entity for which the information returns are being filed was not engaged in tax evasion. Penalties may be assessed if a reasonable cause statement is not attached to each delinquent information return filed using DIIRSP.