subject: Offshore Irs What To Do [print this page] The Internal Revenue Service has authority 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 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 taxpayers thinking what to do, this article discusses their 4 remaining options.
Option One: Do nothing. You could do nothing and hope that the IRS does not find out the foreign bank account. Perhaps your foreign foreign bank account is at a bank that you believe 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 bank account's actual owner could be kept anonymous. However, now, the IRS has vastly many more weapon at its disposal than it did previously to find secret accounts.
This is an fundamental disadvantage. The chances are that the IRS does not discover secret accounts gets more and more remote. Why? Because in order to compete for American customer and capital, foreign banks are coerced into complying with the Internal Revenue Service. 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 American 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 IRS has more power and intelligence that it ever had before. The IRS has the manpower and field agents in every major city around the globe.
Option 2: Renounce citizenship; Leave the country. There is only way to escape the jurisdiction of the IRS taxing authority. That is, to renounce one's citizenship and no longer be a US citizen. The process is not as easy as you may think. Furthermore, a requirement of recognizable expatriation is that a citizen has to be in compliance with all tax laws and pay an expatriation tax in order to make it official. If you fail to expatriate properly, you would still be subject to the jurisdiction of the American, meaning nothing was accomplished and you are still subject to all the requirements of the tax code. Renouncing your citizenship only gets rid of future tax liabilities, but you have to report the existence of secret accounts first.
This third way is to simply file amended returns and not mention to 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 you are caught, you are see high penalties and a possibility of criminal charges.
The Department of Justice states that it has begun prosecutions on people who have attempted soft disclosures. So this option has some serious problems
There are other problems with "Quiet Disclosures." One reason is that they do not address 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. So simply filing a quiet disclosure 't go far enough to remove any likelihood of criminal investigations. In fact, the amended return may --- well here's the terrific dilemma with this option --- the soft disclosure does nothing about 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.
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 alternative 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 two requirements. Initially, 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. Like drug trafficking or money laundering.
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified Offshore tax attorneys, skilled in offshore compliance and sensitive IRS negotiations.
