subject: The 4 Choices For Voluntary Disclosures Program You Should Know Now [print this page] So many people got caught off guard with the recent attention the Internal Revenue Service is giving holders of offshore foreign bank accounts. 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.
Option One: Stick your head in the sand and hope the IRS never catches you. Perhaps your account is at a foreign bank that you think to be "off the radar" or is in a quiet jurisdiction, or under a friend's name, or opened with a non-American passport. Well, it used to be that a foreign bank account's actual owner could be kept fairly secret. However, now, the Internal Revenue Service has vastly many more weapon at its disposal than it did previously to find unreported accounts.
Here's the thing every global banking and financial organization must be in the American market or it would turn into such a minor league player that the foreign bank's shareholders would revolt and replace management --- immediately. Despite everything you may have heard, the US is still by far the largest economy in the world and every global foreign bank must be on the good side of the IRS otherwise that bank will be shut out of getting American capital or customers! Part of being on the good side of the IRS is to cough up what the Internal Revenue Service says to cough up. Accordingly the foreign bank is really at the mercy of the IRS.meaning so are the banks' account holders. So you see, hiding becomes riskier and riskier. And once the IRS starts an investigation, there are no option left exceptpay outrageous taxes and the highest penalties and face the significant possibility of real jail time.
The second option is to renounce nationality and leave the country --- as there is no other way to escape the power of the IRS. But be warned --- expatriation only will avoid future tax debts and conformity problems. The only method to properly renounce is to effectively come forward about all foreign 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. .)
The third option 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 horrible possibilities 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.
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 citizens who attempted to utilize the "soft" disclosure process.
There are other problems with "Quiet Disclosures." One reason is that they do not remedy the issue 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 remove any possibility of criminal charges. In fact, the 1040X may --- well here's the problem with this option --- the quiet disclosure does nothing concerning the failure to the FBAR. There are still criminal and civil investigations that may be pending for failing to file an FBAR, but simply give the IRS a roadmap to locate 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 alternative is the best option. Yes, the 2011 initiative expired, but that does not mean a voluntary disclosure can not be filed. The Internal Revenue Service always welcomes offshore disclosures. The only thing that expired was the particular stipulations of the 2011 OVDI which capped certain penalties.
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.
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified OVDI attorneys, skilled in foreign compliance and delicate IRS negotiations.
