How Changing IRS Programs May Affect Foreign Tax Compliance

 Posted on December 10, 2020 in Taxation Law

U.S. taxpayers who own offshore accounts or other foreign assets may struggle to understand their requirements for reporting foreign investments to the Internal Revenue Service (IRS) and paying taxes on foreign income. In some cases, these matters have become even more confusing following recent changes to the programs the IRS has made available to taxpayers. In 2018, the IRS ended the Offshore Voluntary Disclosure Program (OVDP), and recently, it also took down the Delinquent International Information Return Submission Procedures (DIISP) from its website. This has left many taxpayers concerned about their ability to become compliant with IRS requirements and avoid penalties related to reporting foreign assets and income.

What Is DIISP?

Previously, the DIISP allowed taxpayers to receive a waiver of the penalties that would normally apply to unreported foreign assets. Taxpayers could qualify for the DIISP if they did not have any unreported income, as long as they could show that they had reasonable cause for their non-compliance, such as death, serious illness, natural disasters, or ignorance of tax laws.

The IRS quietly ended the DIISP in November 2020 without providing any notice that these procedures would no longer be available. Without this option, taxpayers will be required to follow other procedures to become compliant, and they may be subject to tax penalties.

How Will This Affect Streamlined Compliance?

The closure of the DIISP has caused some concern that the IRS may also take down or end other programs that allow taxpayers to resolve issues related to reporting and paying taxes on foreign income and assets. Specifically, the IRS may choose to end the Streamlined Compliance program, which has allowed taxpayers to become compliant with IRS requirements if they can demonstrate that their non-compliance was non-willful. Those who qualify for the Streamlined Domestic Offshore Procedures (SDOP) are required to pay a 5% penalty. Penalties are waived for those who qualify for the Streamlined Foreign Offshore Procedures (SFOP).

The IRS has stated that the Streamlined Compliance program is temporary. When the IRS ended the OVDP, it provided taxpayers with a 6-month notice, allowing those who qualified for the program to use its procedures to become compliant. However, the abrupt end of the DIISP without notice shows that the IRS does not always provide prior notice, and if it chooses to end the Streamlined Compliance program, it could take either approach. Taxpayers who are considering participating in the SDOP or SFOP should take steps to do so as soon as possible to ensure that they are not left without options in the future.

Contact Our San Jose Offshore Tax Compliance Attorney

If you need to address issues related to reporting of foreign assets or income, John D. Teter Law Offices can advise you of your options and help you determine whether you qualify for programs that will allow you to become compliant with IRS requirements. We will help you take the right steps to use the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures while they are still available, and we will work to minimize your potential tax penalties. Contact Our San Jose, CA tax law attorney today by calling 408-866-1810.

Sources:

https://www.irs.gov/individuals/international-taxpayers/delinquent-international-information-return-submission-procedures

https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures