subject: The 4 Things You Want To Know About Irs Offshore Accounts [print this page] The Internal Revenue Service 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. The Internal Revenue Service offered two previous offshore voluntary disclosure initiatives. One in 2009 and the last one in 2011. The last one passed on August 31, 2011. For those people wondering what to do, this piece discusses their four remaining options.
Option One: Stick your head in the sand and hope the IRS never catches you. Perhaps your account is at a 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-US passport. Well, it used to be that a foreign bank account's actual owner could be kept fairly secret. However, now, the IRS has vastly many more tools than it did previously to find hidden accounts.
Here's the thing every global banking and financial institution must be in the American market otherwise it would become such a small time player that the bank's corporate board would revolt. 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! In order to be on the good side of the IRS is to cough up what the IRS says to disclose. Therefore the foreign bank is really at the mercy of the Internal Revenue Service.meaning so are the banks' foreign account holders. So you see, hiding becomes riskier and riskier. And once the IRS starts an investigation, there is only one option leftpay outrageous taxes and the highest penalties and face the significant possibility of real jail time.
The second option is to renounce nationality and depart the country --- as this is the only way to escape the taxing jurisdiction of the Internal Revenue Service. But be warned --- expatriation only works to dodge upcoming tax debts and submission problems. The lone way to correctly renounce is to effectively come forward about all overseas foreign bank financial records and actually forfeit an expatriation excise (in many ways it was easier to leave Soviet Block country than to leave the USA completely intact with your wealth.)
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?
The Internal revenue service says that these 1040X's are "red flags." Even though the tax returns are amended and back taxes paid, the Internal revenue service tells says that account holders will still face penalties and criminal charges. In addition to charging and prosecuting people with undeclared foreign income, the Department of Justice claims that it has also begun prosecution of citizens whose "Quiet Disclosures" were discovered by the Internal revenue service.
The "soft" disclosure option is incredibly risky for several reasons. One reason is that a soft disclosure does not remedy the issue of the taxpayer's non-compliance in FBAR filing; as a willful failure to file an FBAR is a criminal charge. So filing a quiet disclosure does not go far enough to eradicate any possibility of criminal investigations. In fact, the 1040X might --- well here's the massive problem with this option --- it does nothing concerning the failure to FBAR forms. There are still criminal and civil investigations 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 disclosure under the 2011 OVDI has passed, it is not too late. The only thing that expired on August 31, 2011 was the particular off-the-shelf terms of the 2011 OVDI. It was simply a pre-agreed upon penalty structure. The Internal revenue service always welcomes voluntary disclosures.
There are two main requirements. First, the taxpayer can't already be under examination or criminal investigation. And next, the foreign accounts cannot be connected to any criminal activity like currency laundering or drug trafficking. Once these qualifications are met, any criminal crimes are removed from the continuum of possibilities and the taxpayer's is sent to the civil division for assessment of taxes, interest and penalties. A voluntary disclosure offers reduced penalties and a promise of no criminal prosecution. Although fines and penalties may be substantial, they are insignificant compared to an .
If someone is still questioning what the proper course of action is, it is critical that they only speak to a qualified overseas tax lawyer. The attorney-client privilege only applies when speaking to an lawyer. The IRS can subpoena nearly anyone else to testify against a taxpayer.
