What To Do About Voluntary Disclosure
And the IRS demands to know where all the people foreign accounts are located ---
it is a crime to keep these account secret if they are over $10,000.00 in value. The Internal Revenue Service offered two previous offshore voluntary disclosure initiatives. One in 2009 and the last one in 2011. The last one expired on August 31, 2011. For those people thinking what to do, this piece discusses their four remaining options.
The first option available is to roll the dice and pray for a miracle. The benefit is that it costs nothing 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 downside that is if learned, there is an unbelievable emotional strain for anybody who become a criminal defendant. Even if acquitted, the entire process will be the most arduous time of someone's life. Even if found not guilty, a criminal trial is still incredibly costly.
This is an important caveat. The chances are that the IRS 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 Internal Revenue Service 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 Internal Revenue Service will also run names of other individuals it suspects of being US 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 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 complicated. 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 inform the IRS about the existence of hidden financial accounts first.
The third option is to quietly filed amended 1040X's and not explicitedly tell the IRS 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 horrible possibilities are that you may give the Internal Revenue Service a roadmap to charge you criminally, and if caught, you are see high penalties and a 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 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 IRS.
The "soft" disclosure option is incredibly risky for several reasons. One reason is that a soft disclosure does not address the matter of the taxpayer's non-compliance in FBAR filing; failing to filing an FBAR can be a criminal charge just by itself. As a result simply filing a quiet disclosure does not go far enough to eradicate any likelihood of criminal charges. In fact, the 1040X may --- well here's the terrific dilemma with this option --- it 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 very handy to locate you.
Option 4: Pre-emptive Disclosure and Negotiation (" Offshore Voluntary Disclosure Initiative") This is the optimal solution. Even though the time to file under the 2011 initiative has expired, it is not too late. The only thing that passed on August 31, 2011 was the specific off-the-shelf terms of the 2011 disclosure. It was simply a pre-agreed upon penalty arrangement. The Internal revenue service always welcomes voluntary disclosures.
There are only two requirements. Initially, 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. Like drug trafficking or money laundering.
If someone is still wondering what the proper course of action is, it is imperative that they only talk to a qualified overseas tax lawyer. The attorney-client privilege only applies in communications to an attorney. The Internal Revenue Service can subpoena nearly anyone else to testify against a taxpayer.
by: ken04d91gr
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