The IRS quietly removed last week one of the four options to correct for return errors in the international space.

The removed program, the Delinquent Information Submission Procedure, provided an avenue to taxpayers who did not need to use or were not eligible under the Offshore Voluntary Disclosure Program or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax. These taxpayers had not filed one or more required international information returns, had reasonable cause for not timely filing the information returns, were not under a civil examination or a criminal investigation by the IRS, and had not already been contacted by the IRS about the delinquent information returns to voluntarily correct filing omissions.

This program was used often to correct accounting errors, as the filing requirements have been in significant flux. Practitioners who do not specialize in foreign reporting forms often found themselves playing catch-up with new forms or new interpretations of forms (such as the new Controlled Foreign Corporation attribution rules and the introduction of Form 8938 (often called the FATCA form).

This removed version of the program replaced a prior regime that provided far greater clarity and comfort to taxpayers and practitioners where no tax was omitted and a form was simply missed. Hopefully any new IRS reworking of the program will include greater clarity about who qualifies, and penalties will be waived if the taxpayer qualifies.

A hidden clue

An IRS update on Oct. 2 provided a small hint about the IRS’s intentions in this area. When the guidance was updated for the Delinquent Information Submission Procedure on the right hand side of the page, the Delinquent Information Submission Procedure disappeared from the list of offshore compliance options, though it was clearly shown during a March 13, 2020 update.

Moving forward

Those in the middle of producing a Delinquent Information Submission Procedure filing for a missed Form 5471, Form 3520, Form 3520-A or Form 8938 can still move forward with the filing. The filing is made in the ordinary course of attaching a reasonable cause statement to the submission.

Will the new process work smoothly? The new process described by the IRS acknowledges two things that could be very concerning to practitioners...