subject: You Must Know These 4 Options About Offshores [print this page] The Internal Revenue Service has power to impose a tax on 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 citizens in non-compliance, the IRS ran two offshore voluntary disclosure initiatives (OVDI). The last one passed on August 31, 2011. For those people thinking what to do, this article discusses their four remaining options.
The first option available is to roll the dice and pray for a miracle. The benefit is that it costs nothing to do, and there is certainly a likelihood of greater than zero, no matter how minor, that the taxpayer can get away with the crime. The downside that is if learned, there is an extraordinary emotional strain for anybody who become a criminal defendant. Even if acquitted, the entire process will be the most arduous time of someone's life. Even if found not guilty, a criminal trial is still incredibly costly.
Here's the thing despite what you hear, the US is still by far the largest ecomony in the world and has the richest population by far. Every foreign foreign bank must compete for US customers. And in order to do so, these banks must comply with what the Internal Revenue Service tell them to. In order to be on the good side of the IRS is to cough up what the IRS says to disclose. As a result the bank is really at the mercy of the IRS.meaning so are the banks' foreign account holders. So you see, hiding behind the shadows becomes riskier and riskier. And once the Internal Revenue Service starts seeking a criminal indictment, there are no option left exceptpay outrageous taxes and the highest penalties and face the significant possibility of real jail time.
Option 2: Renounce citizenship; Leave the country. Do you want to say goodbye to the IRS? There is only one way to do it. That is, to renounce one's citizenship and no longer be a US citizen. The process is not as easy as you may think. Also, a requirement of proper expatriation is that you have to be in compliance with all tax laws and pay an expatriation tax in order to make it official. If the expatriation is handled improperly, the Internal Revenue Service treats it as a non-event, meaning you are still subject to the jurisdiction of the IRS --- indefinitely . Renouncing your citizenship only gets rid of future tax liabilities, but you have to inform the IRS about the existence of undisclosed accounts first.
The third option 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. This is basically a "cheap" alternative and that's is only advantage . 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 nasty and real possibility of criminal charges.
The Internal revenue service says that these 1040X's are "red flags." Even though the tax returns are amended and back taxes paid, the IRS tells says that account holders will still face penalties and criminal charges. In addition to charging and prosecuting people with undeclared foreign income, the DOJ claims that it has also begun prosecution of citizens whose "Quiet Disclosures" were discovered by the IRS.
There are other problems with "Quiet Disclosures." One reason is that they do not address 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 soft disclosure 't go far enough to eliminate any possibility of criminal charges. In fact, the amended return might --- well here's the problem with this option --- it 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 Internal revenue service 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 file under the 2011 initiative has expired, there is time to act. The only deal that passed on August 31, 2011 was the particular standards terms of the 2011 disclosure. The 2011 OVDI was simply a pre-agreed upon penalty structure. The IRS always welcomes voluntary disclosures.
There are only two requirements. Initially, the taxpayer can not be under audit. In addition, the source of the funds in the foreign bank accounts can not be from an illegal source. Like drug trafficking or money laundering.
If someone is still questioning what the appropriate course of action is, it is imperative that they only talk to a experienced overseas tax lawyer. The attorney-client privilege only applies in communications to an lawyer. The Internal Revenue Service can subpoena nearly anyone else to testify against a taxpayer.
