subject: The Four Options For 2012 Ovdp You Must Know Now [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 IRS 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 expired on August 31, 2011. For those people 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 nothing to do, and there is certainly a possibility, no matter how minor, that the taxpayer can get away with the crime. The downside that is if learned, there is an incredible 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.
This is an important caveat. The chances are that the Internal Revenue Service does not discover previously unreported accounts gets smaller and smaller. Why? Because in order to compete for US customer and capital, foreign banks are coerced into complying with the IRS. That's right --- foreign banks take their marking orders from the Internal Revenue Service as well. So if the IRS wants information on American holders of foreign accounts, the Internal Revenue Service will get that information. The IRS will also run names of other individuals it suspects of being US citizens but who opened their accounts with foreign passports. The IRS has incredible investigative powers --- powers it never had before.
The second option is to renounce nationality and depart the country --- as there is no other way to escape the power of the Internal Revenue Service. But be warned --- expatriation only will dodge upcoming tax debts and conformity issues. The lone technique to properly give up is to effectively come clean about all foreign foreign bank 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.)
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. Doesn't this seems like a fool-proof game-plan? Perhaps one could avoid all those excessive penalties of the OVDI programs?
The IRS 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 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 citizens whose "Quiet Disclosures" were discovered by the IRS.
The "soft" disclosure option is incredibly risky for several reasons. One reason is that they do not address the matter of the taxpayer's failure to report the bank account on the FBAR; as a willful failure to file an FBAR is a criminal charge. So filing a quiet disclosure 't go far enough to remove any likelihood of criminal charges. In fact, the amended return might --- well here's the problem with this alternative --- it does nothing about the failure to the FBAR. There are still criminal and civil charges that may be pending for failing to file an FBAR, but simply give the Internal revenue service 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 concern, 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 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 2 requirements. First, 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. Think drug trafficking or money laundering.
If someone is still questioning what the suitable course of action is, it is critical that they only talk to a experienced overseas tax lawyer. The attorney-client privilege only applies when speaking to an attorney. The Internal Revenue Service can subpoena nearly anyone else to give evidence against a taxpayer.
