Delinquent International Information Returns

Missing an international information return can create significant IRS penalty exposure even when the taxpayer reported and paid the underlying income tax. Current IRS procedures generally require delinquent international information returns to be filed through normal filing procedures, and penalties may still be assessed.

International reporting problems can involve Form 5471, Form 3520, Form 3520-A, Form 8938, Form 8621, Form 8865, Form 8858, Form 926, or other foreign-asset and foreign-entity filings.

Colorado Legal assists taxpayers with identifying missing international returns, preparing delinquent or amended filings, analyzing reasonable cause, responding to penalty notices, and determining whether Streamlined or another offshore compliance procedure is more appropriate.

What Is an International Information Return?

U.S. tax law requires numerous forms reporting foreign assets, foreign entities, foreign gifts, trusts, investments, and cross-border transactions.

Many of these forms are primarily information-reporting forms. That means penalties can potentially arise from the filing failure itself rather than solely from unpaid income tax.

Common Delinquent International Forms

Late-filing problems commonly involve:

• Form 5471 — certain U.S. persons with interests in foreign corporations;
• Form 3520 — certain foreign trusts, trust transactions, foreign gifts, and inheritances;
• Form 3520-A — annual information return of certain foreign trusts with U.S. owners;
• Form 8938 — specified foreign financial assets;
• Form 8621 — Passive Foreign Investment Companies and certain foreign mutual funds;
• Form 8865 — certain foreign partnerships;
• Form 8858 — certain foreign disregarded entities and foreign branches;
• Form 926 — certain transfers of property to foreign corporations; and
• other specialized international information returns.

What Does the IRS Currently Tell Taxpayers to Do?

The IRS currently instructs taxpayers who identify delinquent international information returns—and who are not under civil examination, not under criminal investigation, and have not already been contacted by the IRS about those delinquent returns—to file the delinquent information returns through normal filing procedures.

The IRS expressly states that penalties may be assessed under existing procedures.

How Are Most Delinquent International Returns Filed?

Under current IRS guidance, delinquent international information returns other than Forms 3520 and 3520-A generally should be attached to an amended income tax return and filed in accordance with the applicable amended-return instructions.

The precise filing package depends upon the form, tax year, taxpayer type, and related return.

Special Rules for Forms 3520 and 3520-A

The IRS currently instructs taxpayers to file delinquent Forms 3520 and 3520-A according to the specific filing instructions for those forms rather than attaching them under the general rule applicable to most other delinquent international returns.

These forms can involve foreign gifts, foreign inheritances, foreign trusts, U.S. owners of foreign trusts, and trust distributions.

Can I Attach a Reasonable Cause Statement?

Yes. The IRS states that a taxpayer may attach a reasonable-cause statement to a delinquent international information return when reasonable cause is being asserted.

However, attaching the statement does not necessarily prevent an initial penalty assessment.

For many forms, the IRS may assess a penalty during processing without first considering the attached reasonable-cause statement. The taxpayer may then need to respond to subsequent IRS correspondence and submit or resubmit the reasonable-cause explanation.

Forms 3520 and 3520-A Receive Different Reasonable-Cause Processing

The IRS currently states that reasonable-cause statements attached to Forms 3520 and 3520-A are considered before a penalty is assessed.

If reasonable cause is attached to one of those forms, the IRS directs taxpayers to identify on the first page that a reasonable-cause statement is attached.

What Is Reasonable Cause?

Reasonable cause is highly fact dependent.

Potentially relevant circumstances can include:

• the taxpayer’s knowledge and experience;
• the complexity of the foreign asset or entity;
• professional advice received;
• information provided to tax return preparers;
• the taxpayer’s efforts to determine filing obligations;
• the circumstances that caused the filing failure;
• when and how the taxpayer discovered the problem;
• the taxpayer’s subsequent compliance efforts; and
• the particular statutory and regulatory reasonable-cause standard applicable to the form.

A generic statement that the taxpayer ␜did not know about the form␝ should not automatically be assumed to establish reasonable cause.

What If Foreign Income Was Also Omitted?

A delinquent information-return problem can be materially different when the taxpayer also failed to report foreign income or pay U.S. tax.

In that situation, the taxpayer should consider the broader offshore compliance options rather than treating the matter solely as a missing-form problem.

For non-willful conduct involving foreign financial assets, the Streamlined Filing Compliance Procedures may need to be evaluated.

What If the Conduct May Have Been Willful?

Where potentially willful conduct exists, a taxpayer should not assume that filing delinquent forms with a reasonable-cause statement is the appropriate course.

The taxpayer may need to evaluate the IRS Criminal Investigation Voluntary Disclosure Practice.

See also Willful vs. Non-Willful FBAR Violations.

Delinquent International Returns vs. Streamlined

Issue	Delinquent Return Filing	Streamlined Procedures
Primary problem	Missing international information return	Broader foreign asset, income, tax, FBAR, and information-return noncompliance
Penalty protection	Penalties may still be assessed	Specified penalty treatment available to qualifying taxpayers
Non-willfulness certification	Not the same Streamlined certification process	Required
Reasonable cause	May be asserted where legally available	Separate Streamlined framework

Form 5471 Late Filing

Form 5471 is required for various categories of U.S. persons with ownership, control, or other specified relationships to foreign corporations.

Late Form 5471 issues can involve substantial information-return penalties and often require analysis of the foreign corporation’s ownership history, financial statements, income, earnings, and U.S. tax classification.

Form 3520 and Foreign Gifts or Inheritances

A U.S. person receiving a significant foreign gift or inheritance may have a Form 3520 reporting requirement even when the receipt itself is not taxable income.

This distinction can surprise taxpayers: there may be little or no income tax due while a separate information-reporting penalty remains possible.

Form 8938 and FBAR Are Different

Form 8938 and the FBAR overlap in some circumstances but are separate reporting regimes.

Filing one does not automatically satisfy the other.

For FBAR requirements, see our FBAR Filing and FinCEN Form 114 page.

PFICs and Form 8621

Foreign mutual funds and investment companies can create Passive Foreign Investment Company reporting and tax consequences.

See our PFIC Tax and Form 8621 page for additional information.

What If the IRS Has Already Contacted Me?

IRS contact can materially affect available compliance options.

The IRS’s current delinquent-information-return guidance specifically addresses taxpayers who have not already been contacted about the delinquent returns and are not under civil examination or criminal investigation.

If an examination, penalty notice, information-document request, summons, or criminal-investigation contact has already occurred, the response should be tailored to that procedural posture.

Can a Delinquent Return Be Audited?

Yes.

The IRS states that amended returns and amended information returns are not automatically subject to audit merely because they are filed late or amended, but they can be selected under normal audit-selection procedures.

Frequently Asked Questions

Will the IRS automatically waive my late international form penalty?

No. Current IRS guidance states that penalties may be assessed under existing procedures.

Can I include a reasonable-cause letter?

Yes, when reasonable cause is being asserted. The timing and manner in which the IRS considers the statement varies depending on the form.

Do I attach a late Form 5471 to an amended return?

Under the IRS’s current general procedure, delinquent international information returns other than Forms 3520 and 3520-A generally are attached to an amended income tax return and filed according to the applicable instructions.

What if I also missed FBARs?

The matter may involve a broader offshore compliance issue. Streamlined procedures or another compliance method may need to be considered.

What if I have already received a penalty notice?

Once a penalty has been assessed or an IRS notice has been issued, the matter shifts from preventive filing strategy toward penalty-defense and controversy procedures. The available response depends on the form, notice, deadline, and facts.

Official IRS Resources

• IRS — Delinquent International Information Return Submission Procedures
• IRS — International Information Reporting Penalties
• IRS — Offshore Compliance Options