You Should Know These 4 Choices About Irs Voluntary Disclosure

The IRS has power 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 Internal Revenue Service about foreign accounts if their value exceeds $10,000.00 by filing an FBAR form every June. For those taxpayers in non-compliance, the IRS ran two offshore voluntary disclosure initiatives (OVDI). The last one passed on August 31, 2011. For those citizens thinking what to do, this piece discusses their 4 remaining options.

Option One: Do nothing. You could do nothing and hope that the Internal Revenue Service does not find out the account. Perhaps your foreign 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-American passport. Well, it used to be that a bank account's true owner could be kept fairly secret. However, now, the Internal Revenue Service has vastly many more tools than it ever did previously to find secret accounts.

This is an important caveat. 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 IRS 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 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 Internal Revenue Service has the manpower and field agents in every major city around the globe.

The second option is to renounce nationality and leave the country --- as there is no other way to escape the power of the Internal Revenue Service. But be warned --- this only works to avoid future tax debts and conformity troubles. The lone technique to properly renounce is to fundamentally come forward about all overseas bank financial records and actually pay an expatriation excise (many commenters have noted that it was easier to leave cold war USSR with your wealth intact than the modern day USA. .)

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. Sounds think a good strategy, right? Perhaps one could avoid all those excessive penalties of the OVDI programs?

There may be serious problems with this alternative. One major drawback is that the Department of Justice states that it has begun criminal proceeding against people who attempted to utilize the "soft" disclosure process.

There are other problems with "Quiet Disclosures." One massive failing is that a soft disclosure does not remedy the issue of the taxpayer's non-compliance in FBAR filing; failing to filing an FBAR can be a criminal charge just by itself. So filing a quiet disclosure does not go far enough to eliminate any possibility of criminal charges. In fact, the 1040X might --- well here's the terrific dilemma with this alternative --- 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 Internal revenue service a very handy to find 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 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 OVDI. 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 audit. 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 OVDI lawyers, skilled in offshore compliance and delicate IRS negotiations.

by: paus6hj3co

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