Delinquent International Information Return Submission Procedures
There are many different Internal Revenue Service offshore tax amnesty programs to assist Taxpayers with safely getting into offshore compliance. These programs are designed to asssist non-willful US Person Taxpayers who have undisclosed offshore accounts, assets, and/or investments — and have not properly filed their international information forms. The Delinquent International Information Return Submission Procedures (DIIRSP) was one of the most popular programs, until 11/2020 when the program was modified — in which the IRS essentially eliminated the automatic penalty waiver provision. The delinquency procedures are an alternative to the Streamlined Procedures & Voluntary Disclosure. And, even under the revised version of the Delinquent International Information Return Submission Procedures, Taxpayers with undisclosed offshore accounts, assets, or investments may still qualify for the Delinquency Procedures and still avoid fines and penalties for noncompliance with FBAR or FATCA. Let’s take walk through how the DIIRSP process works.
Delinquent International Information Returns
DIIRSP Ends: Reasonable Cause & IRS Penalty Abatement. First, let’s take a step back. Up until September 2018, there were five (5) versions of IRS voluntary disclosure/tax amnesty programs.
Reasonable Cause is not an offshore disclosure “program” per se because it is not technically a program; the rule is directly written into most statutes as a way to automatically avoid penalties. The IRS has begun constricting the voluntary disclosure programs. In September 2018 the IRS terminated OVDP. The program had been around for several years (starting in 2009 as OVDI) and the IRS gave about six months’ notice for the termination of the program.
Recently, the IRS also terminated the Delinquent International Information Returns Submission Procedures (DIIRSP). Unlike OVDP, there was no six-month notice. Rather, the IRS simply modified the web page that referred to DIIRSP. Essentially, what used to be DIIRSP is now simply a Reasonable Cause submission.
DIIRSP vs. Reasonable Cause
Previously, the Delinquent International Information Return Submission Procedures used to be an offshoot of reasonable cause. In other words, with DIIRSP, if the taxpayer was able to show that not only did they have unreported international information returns and acted with reasonable cause — but if they (essentially) had no unreported income sufficient to make a substantive modification to their tax return, then the IRS would waive penalties.
When a person did not qualify for DIIRSP (usually because they have some unreported income) and wanted to resolve old returns while avoiding the Streamlined Domestic Program’s 5% penalty, they could still qualify for Reasonable Cause.
The wild card would be this: with Delinquent International Information Return Submission Procedures a person would be able to avoid penalties, but with Reasonable Cause (without qualifying for DIIRSP) the taxpayer would not get the same type of “guarantee” for a penalty abatement under Reasonable Cause.
In other words, if a person qualified for DIIRSP, then that would have been the best choice. When a person did not qualify for DIIRSP and instead chose Reasonable Cause over the Streamlined Program — they were doing so with a risk that was not involved if they had qualified for DIIRSP.
Reasonable Cause & Normal Filing Procedures
What’s normal, right?
With the termination of the Delinquent International Information Return Submission Procedures, taxpayers will now have to file under the regular procedures along with a “Reasonable Cause” statement. This is still a viable alternative to the Streamlined Program and it is something you should explore with your experienced tax attorney.
Are the Streamlined Programs Also Ending Soon?
Previously, the IRS stated that the Streamlined Programs were only a temporary”band-aid” for individuals to get up to speed with FATCA.
Most practitioners presume that due to its popularity, the IRS would give substantial notice before closing the streamlined program but if the DIIRSP is any indication of things to come, the Streamlined Programs may end without any fireworks.
There is no crystal ball, but with the significant expansion of the traditional voluntary disclosure program, along with the closing of OVDP and Delinquent International Information Return Submission Procedures — it may very well be that Streamlined will be engulfed into the traditional voluntary disclosure program, with the taxpayer having to submit to VDP and make the case for non-willfulness (as was required with prior OVDP, before the stand-alone Streamlined was introduced).
An alternative thought would be that the IRS may increase the streamlined penalty, as it did incrementally previously with OVDI/OVDP.
However, with the increase in government spending recently, the IRS needs to seriously weigh the costs and benefits of closing down these popular revenue-increasing programs. If the IRS combines the Streamlined Program with VDP and requires each taxpayer to go through a lengthy, detailed process to prove non-willfulness, it could potentially be more costly for the IRS. There would be less taxpayers coming forward and applying for these programs. Also, it would take a lot more IRS manpower to go through each case. The IRS Agent would have to spend an inordinate amount of time for even easy open-and-shut non-willful Streamlined cases.
With that said, the past two years have shown that the IRS has no problem terminating popular offshore amnesty programs. If you are considering entering into any of these programs, time is of the essence.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically FBAR penalties and IRS offshore disclosure & compliance.
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