The Four Choices For Voluntary Disclosures Program You Must Know Now
If you are an American taxpayer with an offshore foreign bank accounts that you thought were secret
, you must bring it into compliance that is file missing FBARs and include any missing income on amended tax returns. So what to do? The last offshore voluntary disclosure initiative (OVDI) ended on August 31, 2011. With that in mind, here are the four options currently available to those wondering what to do.
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 possibility, no matter how slight, that the taxpayer can get away with the crime. The disadvantages are that if discovered, the penalties are severe. 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 secret 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 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 IRS 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. Do you want to say goodbye to the Internal Revenue Service? 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 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 report the existence of undisclosed 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 Internal revenue service just think "regular" 1040X's, pay the taxes, and hope the Internal Revenue Service won't figure out what was going on. Doesn't this seems like a fool-proof game-plan? Perhaps one could avoid all those excessive penalties of the OVDI programs?
The IRS 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 citizens whose "Quiet Disclosures" were discovered by the IRS.
There are other problems with "Quiet Disclosures." One massive failing 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. So filing a quiet disclosure 't go far enough to remove any possibility of criminal charges. 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 roadmap to find 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 OVDI has expired, there is time to act. The only deal that passed on August 31, 2011 was the particular standards terms of the 2011 OVDI. It was simply a pre-agreed upon penalty structure. The IRS always welcomes voluntary disclosures.
There are two main requirements. First, the taxpayer can't already be under audit or investigation. And second, the foreign accounts can't be connected to any criminal activity like money laundering or drug trafficking. Once these prerequisites are satisfied, any criminal crimes come off the table and the taxpayer's is sent to the civil division for assessment of taxes, interest and penalties. A successful OVDI offers reduced penalties and a promise of absolutely no criminal charges. Although fines and penalties may be significant, they are meaningless compared to an .
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified OVDI lawyers, experienced in overseas compliance and delicate IRS negotiations.
by: car4xc31hu
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