The IRS has recently spotted and flagged the misuse of its streamlined procedures for reporting and paying delinquent taxes on offshore income. If you failed to report international income on a tax return and need to amend that return, you must now be especially cautious about using the proper IRS procedures. You may have to file amended returns through normal rather than streamlined procedures.

The IRS scrutiny arose when officials recognized that some taxpayers were deliberately omitting offshore income from their returns, only to misuse the IRS's streamlined procedures to file the amended return and pay the tax without due penalties. The IRS first offered its streamlined procedures in 2012 and later expanded the opportunity to a broader base of taxpayers.

The streamlined procedures were always to have been available only to taxpayers who had believed that they were filing the correct return—the incorrect return must have been "due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.” Willful tax avoiders who deliberately filed a return omitting offshore income would not qualify for streamlined amendment procedures.

Taxpayers, though, may have mistaken the IRS's generosity in broadening the streamlined-compliance procedure as indicating the IRS's intent not to enforce penalties or for lax enforcement, where taxpayers had knowingly omitted the offshore income from the original return.

The seemingly open door to streamlined procedures has now definitively closed. The IRS's current stance requires taxpayers needing to file a delinquent international information return to do so through normal, rather than streamlined, procedures. Indeed, the same November 2020 IRS update holds that delinquent taxpayers may file the amended return only if not already under an IRS civil examination or criminal investigation, and the IRS has not already contacted the taxpayer about the delinquencies.

Given these complexities and the enforcement risks, delinquent taxpayers are wise to consult expert tax counsel. Frazer Ryan Goldberg & Arnold LLP is a nationally recognized law firm organized in service-specific lawyer teams, meeting the needs of closely held businesses. Call Senior Partner, Tax Controversy Attorney, Brandon A. Keim at (602) 200-7399 to consult on unreported-income issues and other tax and legal problems.