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How Can Taxpayers Address Delinquent International Tax Returns?

 Posted on February 27, 2021 in Taxation Law

San Jose, CA international tax return compliance lawyerU.S. taxpayers are required to comply with a wide variety of tax laws, but understanding these complex requirements can sometimes be difficult, especially for those who own international assets or earn income from foreign sources. Taxpayers may be required to file multiple different types of forms related to foreign assets, accounts, and income, and those who have not met their foreign investment reporting requirements may be concerned about the possibility that they may face a tax audit and be subject to penalties. Fortunately, the IRS has provided procedures that taxpayers can follow to file delinquent international tax returns.

DIIRS Procedures

The IRS encourages taxpayers to voluntarily comply with its requirements for reporting foreign income and assets and paying any delinquent taxes that are owed. In some cases, taxpayers may be able to participate in the Streamlined Compliance program and use the Streamlined Domestic Offshore Procedures (SDOP) or Streamlined Foreign Offshore Procedures (SFOP) to disclose any unreported foreign assets or income and pay taxes that are owed. Depending on whether a person qualifies for the domestic or foreign procedures, they may also be assessed a penalty.

For those who do not need to use the streamlined compliance procedures to become compliant with their requirements, the IRS offers another program known as the Delinquent International Information Return Submission (DIIRS) Procedures. Taxpayers may qualify for this program if they have not filed one or more international information returns, they are not facing a civil examination or criminal investigation by the IRS, and they have not already been contacted by the IRS about the delinquent forms.

International information returns that may be submitted through the DIIRS procedures include:

  • Form 3520: Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
  • Form 3520-A: Annual Information Return of Foreign Trust With a U.S. Owner
  • Form 5471: Information Return of a U.S. Person 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 8938: Statement of Specified Foreign Financial Assets
  • Form 926: Return by a U.S. Transferor of Property to a Foreign Corporation
  • Form 8621: Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund

Most delinquent informational returns can be filed along with an amended return, although Forms 3520 and 3520-A have special instructions that must be followed. When filing delinquent returns, a taxpayer can provide a statement that shows reasonable cause for why they did not file these forms by their original deadlines. The IRS may apply penalties without considering statements of reasonable cause, and taxpayers may need to respond to these penalties or other queries by the IRS and resubmit information about reasonable cause. While filing a delinquent return will not automatically trigger a tax audit, the IRS may choose to perform an audit after reviewing the submitted information.

Contact Our San Jose Foreign Tax Reporting Lawyer

If you have not filed tax forms related to foreign assets, accounts, or income, you will want to make sure you are taking the correct actions to comply with the IRS’s requirements and avoid or minimize penalties. John D. Teter Law Offices can help you determine your best options for foreign tax compliance, and we will provide you with representation during a tax audit or other situations where the IRS attempts to collect taxes and penalties. Contact our San Jose, CA foreign tax compliance attorney by calling our office at 408-866-1810.


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