Ovdi What To Do
The Internal Revenue Service has authority 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. The Internal Revenue Service offered two previous offshore voluntary disclosure initiatives. One in 2009 and the last one in 2011. The last one passed on August 31, 2011. For those taxpayers thinking what to do, this piece discusses their 4 remaining options.
The first option available is to roll the dice and pray for a miracle. 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 caught, 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 fundamental disadvantage. The chances are that the Internal Revenue Service does not discover unreported accounts gets more and more remote. 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 IRS will also run names of other individuals 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 Internal Revenue Service taxing authority. That is, to renounce one's citizenship and no longer be a American 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 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. Expatriation may make sense to avoid future tax liabilities , but you have to inform the IRS about the existence of undisclosed accounts first.
Option 3: Soft (or quiet) disclosure. One option is to file amended returns, this time including previously unreported income simply filing the returns as if it were simply forgotten income. Doesn't this seems like a fool-proof game-plan? Perhaps one could avoid all those excessive penalties of the OVDI programs?
The Internal revenue service says that these amended returns are "red flags." Even though the tax returns are amended and back taxes paid, the IRS tells says that account holders will still face penalties and criminal charges. In addition to charging and prosecuting people with undeclared foreign income, the DOJ claims that it has also begun prosecution of people whose "Quiet Disclosures" were discovered by the Internal revenue service.
The "soft" disclosure option is incredibly risky for several reasons. One reason is that they do 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. As a result filing a soft disclosure 't go far enough to remove any likelihood of criminal charges. In fact, the 1040X may --- well here's the massive 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 Internal revenue service a roadmap to locate you.
Option 4: Pre-emptive Disclosure and Negotiation (" Offshore Voluntary Disclosure Initiative") This is the optimal solution. Even though the time to disclosure under the 2011 OVDI has passed, there is time to act. The only thing that expired on August 31, 2011 was the particular standards terms of the 2011 disclosure. The 2011 OVDI was simply a pre-agreed upon penalty structure. The IRS always welcomes voluntary disclosures.
There are only two requirements. First, the taxpayer can not be under examination. In addition, the source of the money in the foreign bank accounts can not be from an illegal source. Think drug trafficking or money laundering.
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified Offshore tax attorneys, experienced in overseas compliance and sensitive IRS negotiations.
by: ken04d91gr
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