2012 Ovdi What Are Your Four Options
The Internal Revenue Service has authority to impose a tax on income from around the globe
. The Internal Revenue Service has universal jurisdiction to tax income anywhere it is earned --- even it was earned on the moon! Not only that, it is a crime not to tell the IRS about foreign accounts if their value exceeds $10,000.00 by filing an FBAR form every June. The Internal Revenue Service offered two previous offshore voluntary disclosure initiatives. One in 2009 and the last one in 2011. The last one expired on August 31, 2011. For those people thinking what to do, this article discusses their four remaining options.
Option One: Stick your head in the sand and pray the IRS never catches you. Perhaps your account is at a bank that you believe to be "off the radar" or is in a quiet country, or under a friend's name, or opened with a non-American passport. Well, it used to be that a bank account's actual owner could be kept anonymous. However, now, the IRS has vastly many more weapon at its disposal than it did previously to find unreported accounts.
This is an fundamental disadvantage. The chances are that the IRS does not discover hidden accounts gets smaller and smaller. Why? Because in order to compete for US customer and capital, foreign banks are coerced into complying with the IRS. That's right --- foreign banks take their marking orders from the IRS as well. So if the Internal Revenue Service wants information on American holders of foreign accounts, the Internal Revenue Service will get that information. The Internal Revenue Service will also run names of other people it suspects of being US citizens but who opened their accounts with foreign passports. The IRS has incredible investigative powers --- powers it never had before.
Option 2: Renounce citizenship; Leave the country. There is only way to escape the jurisdiction of the IRS taxing authority. That is, to renounce one's citizenship and no longer be a American citizen. The process is complicated. Additionally, a requirement of proper expatriation is that a citizen has to be in compliance with all tax laws and pay an expatriation tax in order to make it official. If the expatriation is handled improperly, the IRS treats it as a non-event, meaning you are still subject to the jurisdiction of the Internal Revenue Service --- indefinitely . Expatriation may make sense to avoid future tax liabilities , but you have to disclose the existence of undisclosed accounts first.
This third way is to simply file amended returns and not explicitedly tell the IRS that you are seeking to come clean. This is known as a "quiet" or "soft" disclosure. The advantage is that there is little upfront cost to this. But the disadvantages are that you may give the Internal Revenue Service a roadmap to charge you criminally, and if caught, you are see high penalties and a possibility of criminal charges.
The Department of Justice states that it has begun prosecutions on people who have attempted soft disclosures. So this option has some serious problems
There are other problems with "Quiet Disclosures." One massive failing is that they do not remedy the matter of the taxpayer's failure to report the bank account on the FBAR; as a willful failure to file an FBAR is a criminal charge. As a result simply filing a quiet disclosure does not go far enough to eradicate any likelihood of criminal investigations. In fact, the 1040X might --- well here's the problem with this option --- the soft disclosure does nothing concerning the failure to FBAR forms. There are still criminal and civil charges that may be pending for failing to file an FBAR, but simply give the IRS a very handy to locate you.
Option 4: Pre-emptive Disclosure and Negotiation (" Offshore Voluntary Disclosure Initiative") This is the best option. Even though the time to file under the 2011 initiative has passed, there is time to act. The only thing that passed on August 31, 2011 was the particular off-the-shelf terms of the 2011 OVDI. The 2011 OVDI was simply a pre-agreed upon penalty structure. The IRS always welcomes voluntary disclosures.
There are 2 main requirements. First, the taxpayer cannot already be under examination or investigation. And second, the foreign financial accounts can't be connected to any criminal activity like currency laundering or drug trafficking. Once these qualifications are satisfied, any criminal charges are removed from the continuum of possibilities and the taxpayer's is referred to the civil division for assessment of taxes, interest and penalties. A voluntary disclosure offers reduced penalties and a guarantee of no criminal prosecution. Even though fines and penalties may be significant, they are insignificant compared to an .
If someone is still questioning what the proper course of action is, it is imperative that they only speak to a qualified offshore tax lawyer. The attorney-client privilege only applies in communications to an attorney. The Internal Revenue Service can subpoena a CPA or nearly anyone else to testify against a taxpayer.
by: bry2jf79bo
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