If you have failed to file one or more international information returns over the preceding three years, and you have not underreported Federal income tax, then the Delinquent International Information Return (“DIIRP”) likely is your route to compliance.
International information returns include the following:
Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation
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 U.S. Persons 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 Foreign Financial Assets
Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships
In a DIIRP case, we first file FinCEN Forms 114, Report of Foreign Bank and Financial Accounts, “FBARS”, or amended FBARs as needed for the client for the last six years. Then we have any needed U.S. income tax returns or amended income tax returns, including any applicable information returns, prepared for the client for the last three years. We prepare an appropriate reasonable cause statement to be signed under oath and filed with each of the income tax returns or amended tax returns, except that we do not file a reasonable cause statement with a timely-filed income tax return
There is no penalty for a submission under the DIIRP, provided the delinquent information returns are filed before the Internal Revenue Service discovers the delinquency and brings it to the taxpayer’s attention, and the client files the delinquent information returns with a persuasive reasonable cause statement. Therefore, if a client has delinquent information returns, we have the delinquent information returns, a strong reasonable statement, and amended income tax returns as needed prepared for the client, and we file them, as soon as possible.
Why only three years of delinquent information returns? Most information returns constitute part of an income tax return. The stature of limitations on assessment with respect to an income tax return is three years, and it begins to run when the tax return is filed. Where an income tax return is filed omitting an information return, the assessment statute of limitations is tolled (does not begin to run) with respect to the income tax return until the delinquent information return is filed, unless there is reasonable cause for the delinquency, in which case there is no tolling. As noted, our delinquent information return are filed with a good, strong reasonable cause statement.
Forms 3520 and 3520-A are not part of an income tax return. Rather they are stand-alone information returns separately signed under oath. We have found filing the last three years of delinquent Forms 3520 and 3520-A sufficient. The IRS does not request Forms 3520 or 3520-A for earlier years.