IRS Policy Changes Related to Delinquent International Information Returns

The IRS changed its policy related to filing late international information returns. On November 5, 2020 many practitioners were surprised to see the former Delinquent International Information Return Submission Procedures webpage had changed significantly. [Compare the new site – versus the version in effect March 13, 2020]. Prior, qualifying taxpayers would include a Reasonable Cause statement with amended returns, and there would be no penalties if the IRS agreed with the Reasonable Cause argument. Now, however, the website says taxpayers “should file the delinquent information returns through normal filing procedures”.

Additionally, the IRS is likely to impose penalties without even reading an attached Reasonable Cause statement. Specifically, “Taxpayers may attach a reasonable cause statement to each delinquent information return filed for which reasonable cause is being asserted. During processing of the delinquent information return, penalties may be assessed without considering the attached reasonable cause statement. It may be necessary for taxpayers to respond to specific correspondence and submit or resubmit reasonable cause information.” [Emphasis added.]

This is troubling news, especially as some taxpayers submitting their returns under the former program have been evaluated under the new rules. This seems patently unfair. An IRS representative on a recent webinar stated there was not a revocation and the IRS just revised the website to explain the procedures more clearly. It is difficult to accept such explanation.

What does this mean for you? If faced with IRS penalties after filing under the Delinquent International Information Return Submission Procedures, taxpayers will need to respond to the IRS, re-attaching the Reasonable Cause statement. Ideally the end result will be identical to what it would/should have been under the former program; however, it will take more time and effort.

As always, the International Tax Nerds at Schwartz International are here to assist you with any of your international tax needs, whether personal or company related.