subject: What To Do About Irs Offshore [print this page] The Internal Revenue Service has authority to impose a tax on income from around the globe. The Internal Revenue Service 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 IRS about foreign accounts if their value exceeds $10,000.00 by filing an FBAR form every June. The IRS 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 citizens thinking what to do, this piece talks about their 4 remaining options.
The first option is to do nothing except hope and pray. The advantage is that it costs zero to do, and there is certainly a likelihood of greater than zero, no matter how small, that the taxpayer can get away with the crime. The disadvantages are that if caught, the penalties are harsh. In both financial cost and in emotional drain of being charged with a federal crime. Even if found not guilty, a criminal trial is still incredibly costly.
Here's the thing despite what you hear, the American is still by far the largest ecomony in the world and has the richest population by far. Every foreign bank must compete for American customers. And in order to do so, these banks must comply with what the Internal Revenue Service tell them to. Part of being on the good side of the IRS is to disclose what the IRS says to cough up. Therefore the bank is really at the mercy of the IRS.meaning so are the banks' account holders. So you see, hiding becomes a more dangerous and dangerous. 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 citizenship and leave the country --- as there is no other way to escape the power of the IRS. But be warned --- this only will avoid upcoming tax debts and conformity problems. The only technique to properly forsake is to fundamentally come clean about all overseas foreign bank financial 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 explicitedly tell the Internal Revenue Service 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 IRS 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 1040X's are "red flags." Even though the tax returns are amended and back taxes paid, the IRS tells says that foreign 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 people whose "Quiet Disclosures" were discovered by the IRS.
There are other problems with "Quiet Disclosures." One reason 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. As a result simply filing a quiet disclosure 't go far enough to remove any likelihood of criminal investigations. In fact, the 1040X may --- well here's the massive problem with this alternative --- the quiet disclosure 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 roadmap to find you.
The forth option is a pre-emptive disclosure and subsequent negotiation of the penalties. If enjoying the rest of your life is chief importance, there can be no question that this is the best option. Yes, the 2011 initiative expired, but that does not mean a voluntary disclosure can not be filed. The IRS always welcomes offshore disclosures. The only thing that expired was the particular provisions of the 2011 OVDI which capped certain penalties.
There are only 2 requirements. First, the taxpayer can not be under examination. In addition, the source of the funds in the foreign bank accounts can not be from an illegal source. Think drug trafficking or money laundering.
If someone is still wondering what the appropriate course of action is, it is critical that they only talk to a qualified offshore tax attorney. The attorney-client privilege only applies when speaking to an attorney. The Internal Revenue Service can subpoena nearly anyone else to testify against a taxpayer.
