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IRS Releases FAQs for the Delinquent International Information Return Submission Procedures

The IRS recently released frequently asked questions for the Delinquent International Information Return Submission Procedures (available here).

The IRS now states that these procedures are available to taxpayers even if they have unreported income. See below quote:

The Delinquent International Information Return Submission Procedures clarify how taxpayers may file delinquent international information returns in cases where there was reasonable cause for the delinquency. Taxpayers who have unreported income or unpaid tax are not precluded from filing delinquent international information returns. (emphasis added) Unlike the procedures described in OVDP FAQ 18, penalties may be imposed under the Delinquent International Information Return Submission Procedures if the Service 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).

In comparison, 2012 FAQ 18: (reads in part as follows):

“The IRS will not impose a penalty for the failure to file the delinquent Forms 5471 and 3520
if there are no under-reported tax liabilities and you have not previously been contacted
regarding an income tax examination or a request for delinquent returns.”

The above FAQ 18 assurances are not contained under the New Procedures for Delinquent Offshore International Returns. It is now more important than ever that a carefully drafted persuasive demonstration of reasonable cause be included with a taxpayer’s submission to avoid imposition of penalties.