We represent a client who may need to file delinquent international information returns under the IRS Delinquent International Information Return Submission Procedures. These procedures invite taxpayers who meet the specified criteria to “file the delinquent information returns with a statement of all facts establishing reasonable cause for the failure to file.”
I wanted to know how many prior years of disclosure returns to prepare and file. In other words, how long is the “look-back period”?
I spoke on April 5, 2017 with an IRS agent on the OVDP hotline. The IRS agent responds to questions about filing of delinquent U.S. income tax returns and foreign bank account reports for assets held overseas by U.S. persons. I have spoken with this IRS agent on several prior occasions. He is has several years of experience in this IRS department.
The IRS agent declined to give a specific number of years because there is no straightforward answer that he can offer on behalf of the IRS. He added the following points:
- Most taxpayers go back at least three years because the “regular” statute of limitations for assessment is three years under section 6501 of the Internal Revenue Code. Also, the Streamlined Filing Compliance Procedures (a related program where taxpayers must pay a penalty of five percent of the maximum value of their assets held overseas) require three years of income tax returns and six years of FBARs.
- Some taxpayers choose to go back more than three years.
- The IRS reserves the right to ask the taxpayer to go back more than three years. This means that if the taxpayer files for the preceding three years only, and the IRS requests additional earlier filings, the taxpayer must provide those earlier filings. Usually the IRS will not request these earlier filings, but the IRS reserves that right so long as the statute of limitations has not expired.
- NOTE: Regarding the statute of limitations, see section 6501(c)(8) of the Internal Revenue Code. If IRS Form 5471 is not filed for taxable years after 2010, the statute of limitations does not run on the related Form 1040.
- The decision is “up to you.” The IRS intentionally “leaves it open” to the taxpayer’s discretion and best judgment.