DIIRSP: The IRS Procedure for Late International Information Returns When the Income Was Reported

Three procedures address late offshore filings, sorted by what was missed. The streamlined procedures are for missed income (and everything that goes with it). The delinquent FBAR procedure is for missed FBARs where all income was reported. The Delinquent International Information Return Submission Procedures (DIIRSP) are for missed information returns (Forms 5471, 5472, 3520, 3520-A, 8938, 8621, 8865, 926) where all income was reported and the taxpayer has reasonable cause. Until November 2020, the IRS did not assess penalties on DIIRSP submissions with a reasonable-cause statement; since then, it may assess and then abate on the statement. The procedure remains the right route for the taxpayer whose returns were complete except for the form.

Key takeaways

• Who it is for: taxpayers who have not filed one or more required international information returns, have reasonable cause for the failure, are not under examination or investigation, have not been contacted by the IRS about the returns, and have reported and paid tax on all income.
• What is filed: the delinquent information returns, each with a reasonable-cause statement attached, filed with an amended return (Form 1040-X) for the year if the original was filed, or according to the form's own instructions.
• What changed in 2020: the IRS removed the statement that penalties would not be automatically assessed; penalties may now be assessed on receipt and the reasonable-cause statement is then considered for abatement. The procedure is still a filing with a stated reason, which is what reasonable cause requires.
• Reasonable cause is the ordinary standard: the taxpayer exercised ordinary business care and prudence but was nonetheless unable to comply, with the facts explained.
• Fit with the other routes: missed income (a TFSA's earnings, PFIC income) means streamlined, not DIIRSP; missed FBARs alone mean the delinquent FBAR procedure; missed information returns alone mean DIIRSP; a file with all three means streamlined for everything.

The forms it covers

Form 5471 (Canadian corporation), Form 5472 (foreign-owned US corporation or LLC), Form 3520 and 3520-A (TFSA, RESP, foreign gifts and inheritances), Form 8938 (specified foreign financial assets), Form 8621 (PFICs), Form 8865 (foreign partnership), Form 926 (transfer to a foreign corporation), Form 8858 (foreign disregarded entity), Form 8833 (treaty positions). Each has a penalty for late filing ($10,000 for 5471 and 8938; $25,000 for 5472; 5% per month for 3520; none fixed for 8621 but an open statute), and each has a reasonable-cause exception.

The conditions

All income reported. The taxpayer's returns for the years reported all income, including the income from the assets the missing forms relate to. A TFSA whose earnings were never on the 1040 fails; a Canadian corporation whose Subpart F income was not included fails; a Canadian mutual fund whose distributions were reported but whose Form 8621 was missed passes.

Reasonable cause. The taxpayer must explain why the form was not filed: reliance on a preparer who did not know the form existed (with the preparer's name and the advice); the taxpayer's own unawareness despite ordinary care; a misunderstanding of the account's character (a TFSA understood as a savings account). The statement is attached to each form.

No examination or contact. An open examination, or an IRS notice about the missing form, takes the taxpayer outside the procedure.

What to file

For each missed form and year: the completed form, with a statement of reasonable cause signed under penalties of perjury, filed with a Form 1040-X for the year (even if no tax changes) to attach it to the return, or, for forms with separate filing addresses (3520 to Ogden), according to the form's instructions with the statement. The IRS's guidance says to write "Delinquent International Information Return Submission Procedures" or similar is no longer required, but the reasonable-cause statement is.

What the 2020 change means

Before November 2020, the procedure stated that the IRS would not impose a penalty for the failure to file the information returns if the taxpayer attached a reasonable-cause statement. The revised procedure removed that assurance: the IRS may assess the penalty on receipt (its systems assess Form 5471 and 3520 penalties automatically) and the taxpayer then requests abatement on the reasonable-cause statement already attached, or responds to the notice. In practice, many DIIRSP filers receive a penalty notice, respond with the statement, and obtain abatement; the process is slower and less certain than before. The late-2024 IRS change to Form 3520 penalty practice (reviewing reasonable cause before assessment) partly restores the earlier position for that form.

Fit with the other routes

• Missed a Form 8621 for Canadian mutual funds; distributions were reported: DIIRSP.
• Missed Form 5471 for a Canadian corporation; no Subpart F income; the corporation's income was not the taxpayer's: DIIRSP.
• Missed Form 3520 for a TFSA; the TFSA earnings were never reported: streamlined (income missed).
• Missed Form 3520 for a $150,000 gift from a Canadian parent; no income involved: DIIRSP (gifts are not income).
• Missed FBARs only, all income reported: delinquent FBAR procedure.
• Missed FBARs and Forms 8938 and 3520, all income reported: delinquent FBAR procedure for the FBARs and DIIRSP for the forms, filed together.
• Missed everything, including income: streamlined.

Worked example

A US citizen in Toronto has filed 1040s every year with a US preparer, reporting her Canadian salary, interest, dividends, and the RRSP deferral, and filing FBARs. In 2023 her mother gave her $200,000 CAD; no Form 3520 was filed. She also holds $150,000 of Canadian mutual funds whose distributions were reported without Forms 8621.

• Income. All reported (the gift is not income; the fund distributions were on Schedule B).
• Route. DIIRSP for the Form 3520 (2023) and the Forms 8621 (each fund, each open year).
• Filing. Form 3520 for 2023 with a reasonable-cause statement (the preparer did not ask about gifts; she did not know foreign gifts were reportable), filed to Ogden; Forms 8621 for 2023 to 2025 with statements, attached to 1040-Xs for each year (the PFIC computation may change the tax; the excess distribution regime applies to distributions and dispositions in those years).
• Exposure. Form 3520: 25% of $200,000 = $50,000 if assessed; abatement requested on the statement. Form 8621: no fixed penalty; the open statute closes on filing.
• Going forward. Sell the funds and hold US-listed ETFs; ask before any large gift.

Official sources

The IRS states that taxpayers "may attach a reasonable cause statement to each delinquent information return filed for which reasonable cause is being asserted," that such returns "will not be automatically subject to audit but may be selected for audit through the existing audit selection processes," and that "penalties may be assessed in accordance with existing procedures." It adds that "for Form 3520 and Form 3520-A reasonable cause statements will be considered prior to a penalty being assessed." — Internal Revenue Service, Delinquent International Information Return Submission Procedures, https://www.irs.gov/individuals/international-taxpayers/delinquent-international-information-return-submission-procedures

The IRS states that U.S. persons file Form 3520 to report "certain transactions with foreign trusts" and the "receipt of certain large gifts or bequests from certain foreign persons." — Internal Revenue Service, About Form 3520, https://www.irs.gov/forms-pubs/about-form-3520

The IRS states that "a U.S. person that is a direct or indirect shareholder of a passive foreign investment company (PFIC) files Form 8621" if they receive certain distributions, recognize gain on a disposition of PFIC stock, or are reporting a QEF or mark-to-market election, among other triggers. — Internal Revenue Service, About Form 8621, https://www.irs.gov/forms-pubs/about-form-8621

Practitioner note

DIIRSP is the route for the client who did everything right except the form, and since 2020 it is a filing that may draw a penalty notice before the reasonable-cause statement is read. We attach the statement to every form, name the preparer who missed it, and answer the notice with the same statement when it comes. For the Form 3520 on a gift, the exposure is the largest and the cause is usually the clearest.

See also: If you are a US citizen or green card holder in Canada catching up, start with what you still owe the IRS, and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the delinquent information returns with reasonable-cause statements under DIIRSP, and the penalty abatement response where a notice follows. See cross-border pricing or book a call.