Offshore Voluntary Disclosure Program The 4 Options You Do Have
The IRS has power to tax 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 taxpayers in non-compliance, the Internal Revenue Service ran two offshore voluntary disclosure initiatives (OVDI). The last one passed on August 31, 2011. For those citizens thinking what to do, this article discusses their four remaining options.
The first option is to do nothing except hope and pray. The benefit is that it costs nothing to do, and there is certainly a likelihood of greater than zero, no matter how small, that the taxpayer can get away with the crime. The disadvantages are that if caught, the penalties are harsh. In both monetary cost and in emotional drain of being charged with a federal crime. Even if found not guilty, a criminal trial is still incredibly costly.
Here's the thing despite what you hear, the US is still by far the largest ecomony in the world and has the richest population by far. Every foreign bank must compete for US customers. And in order to do so, these banks must comply with what the Internal Revenue Service tell them to. In order to be on the good side of the Internal revenue service is to disclose what the IRS says to disclose. Therefore the bank is really at the mercy of the IRS.meaning so are the banks' account holders. So you see, hiding behind the shadows becomes riskier and riskier. And once the IRS starts seeking a criminal indictment, there are no option left exceptpay outrageous taxes and the highest penalties and face the significant possibility of real jail time.
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 US citizen. The process is not as easy as you may think. Additionally, a requirement of recognizable 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 Internal Revenue Service 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 report the existence of hidden accounts first.
Option 3: Soft (or quiet) disclosure. An option that some people attempted is to file amended tax forms 1040X's and mail them to the IRS just think "regular" 1040X's, pay the taxes, and hope the IRS won't figure out what was going on. Doesn't this seems think a fool-proof game-plan? Perhaps one could avoid all those excessive penalties of the OVDI programs?
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 Internal revenue service.
There are other problems with "Quiet Disclosures." One reason is that a soft disclosure does not remedy the issue of the taxpayer's non-compliance in FBAR filing; as a willful failure to file an FBAR is a criminal charge. So simply filing a quiet disclosure 't go far enough to remove any likelihood of criminal charges. In fact, the 1040X may --- well here's the problem with this alternative --- the soft disclosure does nothing concerning the failure to the FBAR. 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.
The forth option is a pre-emptive disclosure and subsequent negotiation of the penalties. If getting sleep at night and not worrying about going to prison is chief importance, there can be no question that this alternative is the best option. Yes, the 2011 initiative expired, but that does not mean a voluntary disclosure can not be filed. The Internal Revenue Service always welcomes offshore disclosures. The only deadline that was missed was the particular terms of the 2011 OVDI which capped certain penalties.
There are two main requirements. First, the taxpayer can't already be under examination or criminal investigation. And second, the foreign accounts can't be connected to any criminal activity like money laundering or drug trafficking. Once these qualifications are met, criminal charges come off the table and the case is sent to the civil division for assessment of taxes, interest and penalties. A voluntary disclosure offers reduced penalties and a guarantee of absolutely no criminal charges. Although fines and penalties may be substantial, they are insignificant compared to an .
If someone is still questioning what the appropriate course of action is, it is critical that they only talk to a qualified foreign tax lawyer. The attorney-client privilege only applies when speaking to an attorney. The IRS can subpoena nearly anyone else to give evidence against a taxpayer.
by: josi1racyo
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