What To Do About Ovdi
So many people got caught off guard with the recent attention the Internal Revenue Service is giving holders of offshore bank accounts
. With the off-the-shelf deals previously offered, the terms of the settlement were known and predictable. Now that the 2009 and 2011 offshore voluntary disclosure initiatives (OVDI) have ended, the Internal Revenue Service has not yet issued a new OVDI, so many non-compliant people are wondering if they should come forward and what the cost of coming forward will be. These are the four options still available.
Option One: Stick your head in the sand and hope the IRS never catches you. Perhaps your foreign bank account is at a foreign bank that you believe to be "off the radar" or is in a quiet country, or under a friend's name, or opened with a non-US passport. Well, it used to be that a foreign bank account's actual owner could be kept anonymous. However, now, the Internal Revenue Service has vastly many more weapon at its disposal than it did previously to find undisclosed accounts.
This is an fundamental disadvantage. The chances are that the IRS does not discover secret accounts gets smaller and smaller. Why? Because in order to compete for American 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 US holders of foreign accounts, the IRS will get that information. The Internal Revenue Service will also run names of other individuals 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 complicated. Also, a requirement of proper 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 IRS --- indefinitely . Expatriation may make sense to avoid future tax liabilities , but you have to report the existence of secret accounts first.
This third way is to quietly filed amended 1040X's and not mention to the Internal Revenue Service 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 Internal Revenue Service a very handy clue 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 IRS says that these amended returns 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 DOJ 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 matter 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 quiet disclosure 't go far enough to remove any likelihood of criminal investigations. In fact, the 1040X may --- well here's the terrific dilemma with this alternative --- the soft disclosure does nothing about 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") If getting sleep at night and not worrying about going to prison 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 deadline that was missed was the particular stipulations of the 2011 OVDI which capped certain penalties.
There are two main requirements. First, the taxpayer can't already be under audit or criminal investigation. And next, the foreign accounts cannot be connected to any criminal activity like currency laundering or drug trafficking. Once these prerequisites are satisfied, criminal crimes come off the table and the taxpayer's is sent to the regular civil assessment division for assessment of taxes, interest and penalties. A successful OVDI offers reduced penalties and a promise of absolutely no criminal charges. Even though fines and penalties may be substantial, they are meaningless compared to an .
If someone is still wondering what the proper course of action is, it is critical that they only speak to a experienced offshore tax lawyer. The attorney-client privilege only applies when speaking to an lawyer. The IRS can subpoena a CPA or nearly anyone else to testify against a taxpayer.
by: josi1racyo
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