Do You Know Your Choices With Offshore Accounts
The Internal Revenue Service has power to impose a tax on income from around the globe
. The IRS 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. For those citizens in non-compliance, the Internal Revenue Service ran two offshore voluntary disclosure initiatives (OVDI). The last one passed on August 31, 2011. For those people wondering what to do, this piece discusses their four remaining options.
The first option is to do nothing except hope and pray. The advantage is that it costs zero to do, and there is certainly a likelihood of greater than zero, no matter how minor, that the taxpayer can get away with the crime. The disadvantages are that if discovered, the penalties are harsh. In both financial cost and in emotional drain of being charged with a federal crime. Even if found not guilty, a criminal trial is still incredibly costly.
This is an important caveat. The chances are that the IRS does not discover previously unreported accounts gets smaller and smaller. Why? Because in order to compete for US customer and capital, foreign banks are coerced into complying with the Internal Revenue Service. 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 IRS will get that information. The Internal Revenue Service will also run names of other people it suspects of being American citizens but who opened their accounts with foreign passports. The Internal Revenue Service has more power and intelligence that it ever had before. The IRS has the manpower and field agents in every major city around the globe.
Option 2: Renounce citizenship; Leave the country. Do you want to say goodbye to the IRS? There is only one way to do it. That is, to renounce one's citizenship and no longer be a American citizen. The process is not as easy as you may think. Furthermore, a requirement of recognizable expatriation is that you have to be in compliance with all tax laws and pay an expatriation tax in order to make it official. If you fail to expatriate properly, you would still be subject to the jurisdiction of the US, meaning nothing was accomplished and you are still subject to all the requirements of the tax code. Renouncing your citizenship only gets rid of future tax liabilities, but you have to disclose the existence of secret accounts first.
This third way is to simply file amended returns and not mention to 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 IRS a roadmap to charge you criminally, and if you are caught, you are experience a pain of high penalties and a nasty and real possibility of criminal charges.
The Internal revenue service says that these 1040X's are "red flags." Even though the tax returns are amended and back taxes paid, the IRS tells says that foreign account holders will still face penalties and criminal charges. In addition to charging and prosecuting people with undeclared foreign income, the Department of Justice claims that it has also begun prosecution of taxpayers whose "Quiet Disclosures" were discovered by the IRS.
There are other problems with "Quiet Disclosures." One massive failing is that a soft disclosure does not remedy the problem of the taxpayer's failure to report the bank account on the FBAR; failing to filing an FBAR can be a criminal charge just by itself. So filing a soft disclosure does not go far enough to eliminate any possibility of criminal investigations. In fact, the 1040X might --- well here's the problem with this option --- the quiet disclosure does nothing about the failure to FBAR forms. There are still criminal and civil investigations that may be pending for failing to file an FBAR, but simply give the IRS a roadmap 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 expired on August 31, 2011 was the specific standards terms of the 2011 disclosure. The 2011 OVDI was simply a pre-agreed upon penalty arrangement. The IRS always welcomes voluntary disclosures.
There are 2 main requirements. First, the taxpayer can't already be under audit or criminal investigation. And second, the foreign financial accounts can't be connected to any criminal activity think currency laundering or drug trafficking. Once these prerequisites are satisfied, criminal charges come off the table 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 promise of no criminal prosecution. Even though fines and penalties may be considerable, they are insignificant compared to an .
If someone is still questioning what the suitable course of action is, it is imperative that they only speak to a qualified offshore tax law firm. The attorney-client privilege only applies when speaking to an lawyer. The IRS can subpoena nearly anyone else to testify against a taxpayer.
by: car4xc31hu
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