What You Need To Know About Offshore Voluntary Disclosure Program
If you are an American taxpayer with an offshore 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. 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 IRS has not yet issued a new OVDI, so many non-compliant citizens are wondering if they should come forward and what the cost of coming forward will be. With that in mind, here are the four options currently available to those wondering what to do.
Option One: Do nothing. You could do nothing and hope that the IRS does not notice the foreign bank account. Perhaps your account is at a 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 bank account's actual owner could be kept fairly secret. However, now, the IRS has vastly many more weapon at its disposal than it did previously to find hidden accounts.
This is an fundamental disadvantage. The chances are that the Internal Revenue Service does not discover secret accounts gets smaller and smaller. 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 US 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 incredible investigative powers --- powers it never had before.
The second option is to renounce nationality and leave the country --- as this is the only way to escape the taxing jurisdiction of the IRS. But be warned --- expatriation only works to avoid upcoming tax debts and compliance problems. The lone way to correctly renounce is to essentially come clean about all offshore foreign bank accounts and actually pay an expatriation excise (in many ways it was easier to leave Soviet Block country than to leave the USA completely intact with your wealth.)
This third way is to quietly filed amended 1040X's and not mention to the IRS that you are seeking to voluntarily disclose. 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 IRS a roadmap to charge you criminally, and if caught, you are experience a pain of high penalties and a nasty and real possibility of criminal charges.
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 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.
There are other problems with "Quiet Disclosures." One massive failing is that they do not remedy the problem 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. As a result filing a soft disclosure 't go far enough to eliminate any possibility of criminal charges. In fact, the 1040X might --- well here's the terrific dilemma with this alternative --- 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 very handy 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 initiative has expired, it is not too late. The only deal that expired on August 31, 2011 was the specific standards terms of the 2011 disclosure. The 2011 OVDI was simply a pre-agreed upon penalty arrangement. The Internal revenue service always welcomes voluntary disclosures.
There are 2 main requirements. First, the taxpayer cannot already be under audit or investigation. And second, the foreign financial accounts cannot be connected to criminal activity like currency laundering or drug trafficking. Once these qualifications are met, criminal charges 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 significant, they are insignificant compared to an .
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified OVDI attorneys, skilled in offshore compliance and sensitive IRS negotiations.
by: car4xc31hu
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