The IRS revised its Delinquent International Information Return Submission Procedure (DIIRSP) last week. The DIIRSP…
The New DIIRSP: I like the old better
Late last year, the IRS revised the Delinquent International Information Return Submission Procedures (“DIIRSP”, which some people phonetically pronounce as “dersp”) to eliminate language limiting the DIIRSP to situations where the taxpayer has not failed to report tax.
Before the change, the DIIRSP originally stated:
Taxpayers who do not need to use the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, but who:
- have not filed one or more required international information returns,
- have reasonable cause for not timely filing the information returns,
- are not under a civil examination or a criminal investigation by the IRS, and
- have not already been contacted by the IRS about the delinquent information returns,
should file the delinquent information returns with a statement of all facts establishing reasonable cause for the failure to file.
The DIIRSP was for situations where the taxpayer did not need to file delinquent or amended tax returns to report and pay additional tax, i.e., where the taxpayer had not failed to report tax. The DIIRSP FAQs (which have since been taken down online) confirmed this in stating “Taxpayers who have unreported income or unpaid tax are not precluded from filing delinquent international information returns.” Therefore, a taxpayer can have unreported income or unpaid tax without having failed to report tax. For example, foreign tax credits can eliminate a US tax liability on previously unreported foreign income.
For many years, our office has used the DIIRSP for hundreds of clients to successfully become US tax compliant. In all our cases, such clients have not received penalty or audit notices.
As of November 5, 2020, the new DIIRSP is now for “taxpayers who have identified the need to file delinquent international information returns who are not under civil examination or a criminal investigation by the IRS and have not already been contacted by the IRS about delinquent information returns.”
While there is no exclusion for taxpayers who need to file delinquent or amended income tax returns to report and pay additional tax, it states that “penalties may be assessed in accordance with existing procedures…It may be necessary for taxpayers to respond to specific correspondence and submit or resubmit reasonable cause information.”
These penalties could include penalties for failure to timely report or pay tax, as well as draconian punitive penalties for failure to file an information return. The IRS has added new uncertainty to the DIIRSP. Even worse, the DIIRSP does not specify how far back a taxpayer should go in filing amended income tax returns and delinquent international information returns. In the complex world of international income reporting, clarity and certainty would be very helpful. The new DIIRSP fails on both counts. I like the old DIIRSP better.
Taxpayers should now cautiously enter the DIIRSP only under the right (and favorable) circumstances. For taxpayers who need more certainty or have unfavorable circumstances, the IRS’ Streamlined Procedures may be a better bet.
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