Late last year, the IRS revised the Delinquent International Information Return Submission Procedures (\u201cDIIRSP\u201d, which some people phonetically pronounce as \u201cdersp\u201d) to eliminate language limiting the DIIRSP to situations where the taxpayer has not failed to report tax. <\/p>\n\n\n\n
Old DIIRSP:<\/strong><\/p>\n\n\n\n Before the change, the DIIRSP originally stated: <\/p>\n\n\n\n Taxpayers\nwho do not need to use the OVDP or the Streamlined Filing Compliance Procedures\nto file delinquent or amended tax returns to report and pay additional tax, but\nwho:<\/p>\n\n\n\n should\nfile the delinquent information returns with a statement of all facts\nestablishing reasonable cause for the failure to file.<\/p>\n\n\n\n The DIIRSP was for situations where the taxpayer\ndid not need to file delinquent or amended tax returns to report and pay\nadditional tax, i.e., where the taxpayer had not failed to report tax. The\nDIIRSP FAQs (which have since been taken down online) confirmed this in stating\n\u201cTaxpayers who have unreported income or unpaid tax are not precluded from\nfiling delinquent international information returns.\u201d Therefore, a\ntaxpayer can have unreported income or unpaid tax without having failed to\nreport tax. For example, foreign tax credits can eliminate a US tax liability\non previously unreported foreign income.<\/p>\n\n\n\n For many years, our office has used the DIIRSP for\nhundreds of clients to successfully become US tax compliant. In all our cases, such clients have not\nreceived penalty or audit notices.<\/p>\n\n\n\n New DIIRSP:<\/strong><\/p>\n\n\n\n As of November 5, 2020, the new DIIRSP<\/a> is now for \u201ctaxpayers 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.\u201d\u00a0 <\/p>\n\n\n\n While there is no exclusion for taxpayers who\nneed to file delinquent or amended income tax returns to report and pay\nadditional tax, it states that \u201cpenalties may be assessed in accordance with\nexisting procedures\u2026It may be necessary for taxpayers to respond to specific\ncorrespondence and submit or resubmit reasonable cause information.\u201d<\/p>\n\n\n\n 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.<\/p>\n\n\n\n Taxpayers should now cautiously enter the DIIRSP\nonly under the right (and favorable) circumstances. For taxpayers who need more\ncertainty or have unfavorable circumstances, the IRS\u2019 Streamlined Procedures<\/a>\nmay be a better bet. <\/p>\n\n\n\n