Ep 63: What is English for "DIIRSP"?
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Manasa discusses the Delinquent International Information Return Submission Procedures (DIIRSP) offered by the IRS.
This program allows individuals who have missed filing certain international information returns but have no additional taxes owed to file late without penalties.
She covers eligibility criteria, the filing process, and best practices to ensure a successful submission.
Takeaways
DIIRSP is a penalty-free option for missed international forms.
Eligibility includes not being under IRS audit and no additional taxes owed.
Common forms covered by DIRSP include 5471, 5472, and 8938.
A reasonable cause statement is crucial for DIRSP submissions.
Filing must be done by paper to a specific IRS address.
Timely filing increases the chances of acceptance by the IRS.
The DIIRSP is not for hidden income issues, only paperwork compliance.
Don't DIY as mistakes can be very expensive (tens of thousands)
Chapters
00:00 Understanding DIRSP: A Lifeline for Tax Filers
06:43 Best Practices for Filing DIRSP
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Manasa Nadig, EA (00:05.1)
What happens if you missed filing one of those international information return forms for your foreign accounts or your companies or your trusts, but you've already paid all your taxes?
Welcome back to the International Money Cafe, where we help make sense of cross-border tax headaches so you can actually avoid costly mistakes. Today, we are tackling this question a lot of global Americans have. The answer may be what the IRS calls DII-RSP and what we call the DIIRSP, which actually stands for the delinquent international information return submission procedures.
What IS DIIRSP
So what is a DIIRSP?
That is basically the IRS's way of saying, if you missed paperwork, but you don't owe extra taxes and it was a genuine mistake, you might be able to file late and skip the penalties.
Think of it as a penalty-free lane, maybe, for folks who forgot forms, but not the taxes. This is usually for international informational filings if you missed reporting foreign companies, foreign trusts, or certain assets. But somehow you did manage to report the income and that was taxed and presented on your US tax return.
Are You Eligible For DIIRSP?
Now, who's eligible for the DIRSP? Let's look at that. You may be eligible if you're not under IRS audit, you don't owe any additional US tax related to these missed forms, your failure to file was not intentional or was not part of an ongoing avoidance pattern, and very importantly, this was non-willful.
Manasa Nadig, EA (02:12.108)
And you have not already amended your return to add income tied to the missed reporting. So, if you have unreported income, you may need to look at other programs like the Streamlined Filing Procedures, et cetera.
What Does DIRSP cover?
Manasa Nadig, EA (02:36.622)
So what does DIRSP commonly cover? The DIRSP commonly covers forms related to foreign corporations, are forms 5471 or 5472, related to foreign trusts or gifts, form 3520 or form 3520A, foreign partnerships or businesses, disregarded entities, form 8865, et cetera.
And FATCA assets form 8938. The DIRSP may not apply to FBARs alone, since that's a separate process, but you could include FBARs on the DIRSP if you're also filing other international forms.
How Does The DIIRSP Work?
So how does the DIIRSP actually work?
You prepare and file the late information returns along with the amended returns if required.
And you also, most importantly, attach a reasonable cause statement. Again, this is key because here's where you get to explain in detail why you missed these forms. The IRS wants more than "I didn't know I had to do this." Your narrative must show reasonable cause.
Manasa Nadig, EA (04:09.356)
Maybe it was confusion, maybe you were new to the country, and you didn't know the rules, although that's not just by itself a reasonable cause. You could also have received professional advice that was incorrect or otherwise incorrect.
Reasonable Cause Statement
So this is the reasonable cost statement. Now, all of these forms have to be filed by paper to a specific IRS address. It does not go to the same place where your normal tax returns go. And once you've sent this in, then you wait for the IRS's response.
If they accept the explanation and you meet all the criteria, the late forms are processed with zero penalties and you may hear back from the IRS saying that was so. But if you did not meet all the criteria and they did not accept your explanation, you may receive a letter from the IRS assessing penalties on these late forms.
If your explanation is strong and you truly qualify under all of these circumstances, then the odds are in your favor.
Now what are the tips and best practices so that the odds will be in your favor? First, get your reasonable cause statements narrative really strong. It should be honest, it should be detailed, and it should not sound cookie-cutter, but at the same time, it cannot be like 20 pages long. It needs to be concise.
Manasa Nadig, EA (06:04.456)
File as soon as you realize. Do not wait for the IRS to send you a notice. And also remember that the DIIRSP is for paperwork compliance. It's not to bring hidden income issues to light.
Consider Seeking Expert Help
Manasa Nadig, EA (06:23.926)
Now, most important, if you've never encountered these forms before and you just found out, or you found that your tax preparer who you've been working with has not encountered them either and has missed filing them, now is the time to seek a cross-border specialist.
Because penalties for non-filing can be huge, sometimes tens of thousands of dollars, so the DIIRSP may be your lifeline if you are a nervous expat or a U.S. tax resident who's just found out that you needed to file these forms.
Manasa Nadig, EA (07:06.422)
So, if you think you've missed a form but don't owe extra taxes, then the DIIRSP could be your ticket to peace of mind. No penalties, just paperwork.
Alright then folks, I hope you found this Shortie to be helpful and also
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Our website is theimcafe.com. T-H-E-I-M-C-A-F-E dot com. Thanks for joining us on yet another Shortie episode of the International Money Cafe. Thank you. See you next time.
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The speakers' views and opinions discussed in this episode should not be considered financial, tax, or legal advice. Consult your advisor for any legal, cross-border tax, and financial advice.