Fbar Voluntary Disclosure What To Do
And the IRS demands to know where all the taxpayers foreign accounts are located
--- it is a crime to keep these foreign bank account secret if they are over $10,000.00 in value. For those people in non-compliance, the Internal Revenue Service ran two offshore voluntary disclosure initiatives (OVDI). The last one passed on August 31, 2011. For those taxpayers wondering what to do, this piece discusses their four remaining options.
Option One: Do nothing. You could do nothing and hope that the Internal Revenue Service does not notice the foreign bank account. Perhaps your foreign bank account is at a foreign bank that you think to be "off the radar" or is in a quiet jurisdiction, or under a friend's name, or opened with a non-US passport. Well, it used to be that a bank account's actual owner could be kept fairly secret. However, now, the Internal Revenue Service has vastly many more tools than it did previously to find unreported accounts.
This is an fundamental disadvantage. The chances are that the IRS does not discover undisclosed accounts gets smaller and smaller. Why? Because in order to compete for American 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 Internal Revenue Service as well. So if the Internal Revenue Service wants information on US 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 Internal Revenue Service has the manpower and field agents in every major city around the globe.
Option 2: Renounce citizenship; Leave the country. There is only way to escape the jurisdiction of the Internal Revenue Service taxing authority. That is, to renounce one's citizenship and no longer be a US citizen. The process is complicated. Also, a requirement of proper 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 American, 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 inform the IRS about the existence of hidden accounts first.
The third option is to simply file amended returns and not explicitedly tell the Internal Revenue Service that you are seeking to voluntarily disclose. 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 very handy clue to charge you criminally, and if 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 Internal revenue service tells says that 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 Internal revenue service.
There are other problems with "Quiet Disclosures." One reason is that a soft disclosure does not address the issue 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 simply filing a soft disclosure does not go far enough to remove any possibility of criminal charges. In fact, the 1040X may --- well here's the terrific dilemma with this alternative --- it does nothing about the failure to the FBAR. There are still criminal and civil investigations that may be pending for failing to file an FBAR, but simply give the IRS a very handy to find you.
The forth option is a pre-emptive disclosure and subsequent negotiation of the penalties. If enjoying the rest of your life is chief concern, there can be no doubt that this is the best option. Yes, the 2011 initiative expired, but that does not mean a voluntary disclosure can not be filed. The IRS always welcomes offshore disclosures. The only thing that expired was the particular conditions of the 2011 OVDI which capped certain penalties.
There are only 2 requirements. First, the taxpayer can not be under examination. Also, the source of the funds in the foreign bank accounts can not be from an illegal source. Like drug trafficking or money laundering.
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified Offshore tax lawyers, experienced in overseas compliance and delicate Internal Revenue Service negotiations.
by: car4xc31hu
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