Taxpayers who are fully compliant with their FBAR Filing Requirements but who are not compliant with their other international information returns, such as Form 3520, Form 3520-A, Form 5472, Form 926, Form 8865, are not suitable candidates for the streamlined procedures or for the Offshore Voluntary Disclosure Program. Instead, they should file the appropriate delinquent information returns with a statement of all facts establishing reasonable cause for the failure to file.  

In doing so, such taxpayers must satisfy the following requirements:

• have not filed one or more required international information returns,
• have reasonable cause for not timely filing the information returns,
• are not under a civil examination or a criminal investigation by the IRS, and
• have not already been contacted by the IRS about the delinquent information returns

Describe your situation in the reasonable cause statement

As explicitly stated on the IRS website, Delinquent Information Return Submission Procedures, as part of the reasonable cause statement, taxpayers must certify that any entity for which the information returns are being filed was not engaged in tax evasion. In order to add some “teeth” to this process, the IRS has threatened to assert penalties if the taxpayer fails to attach a reasonable cause statement to each delinquent information return filed.

The IRS also makes the following points:

• All delinquent international information returns other than Forms 3520 and 3520-A should be attached to an amended return and filed according to the applicable instructions for the amended return.
• All delinquent Forms 3520 and 3520-A should be filed according to the applicable instructions for those forms.
• A reasonable cause statement must be attached to each delinquent information return filed for which reasonable cause is being requested.

Now we get down to brass tacks. Are information returns filed with amended returns automatically subject to audit? The answer is “no,” but that comes with the following caveat: such returns may be selected for audit through the existing audit selection processes that are in place for any tax or information returns. The lesson here is not to take anything for granted and always err on the side of caution.

For answers to the most frequently asked questions regarding the delinquent international information return submission procedures, click here.