subject: Ovdi What Are Your Four Options [print this page] If you are an American taxpayer with an offshore foreign bank accounts that you thought were secret, you must bring it into compliance that is file missing FBARs and include any missing income on amended tax returns. So what to do? The last offshore voluntary disclosure initiative (OVDI) ended on August 31, 2011. These are the four options still available.
The first option is to do nothing except hope and pray. The benefit is that it costs nothing to do, and there is certainly a possibility, no matter how small, that the taxpayer can get away with the crime. The disadvantages are that if discovered, 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 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 American 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 Internal revenue service is to disclose what the IRS says to disclose. As a result the foreign bank is really at the mercy of the Internal Revenue Service.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 nationality and depart the country --- as there is no other way to escape the power of the IRS. But be warned --- this only will dodge upcoming tax debts and conformity problems. The lone technique to properly renounce is to essentially come forward about all offshore foreign bank assets and actually forfeit an expatriation tax (many commenters have noted that it was easier to leave cold war USSR with your wealth intact than the modern day USA. .)
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 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 a soft disclosure does not address the matter of the taxpayer's non-compliance in FBAR filing; failing to filing an FBAR can be a criminal charge just by itself. So simply filing a soft disclosure does not go far enough to eradicate any likelihood of criminal charges. In fact, the 1040X might --- well here's the 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 Internal revenue service a very handy to find you.
Option 4: Pre-emptive Disclosure and Negotiation (" Offshore Voluntary Disclosure Initiative") If getting sleep at night and not worrying about going to prison is chief importance, there can be no doubt 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 stipulations of the 2011 OVDI which capped certain penalties.
There are only 2 requirements. Initially, the taxpayer can not be under audit. Also, 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 wondering what the proper course of action is, it is imperative that they only speak to a experienced offshore tax lawyer. The attorney-client privilege only applies when speaking to an attorney. The IRS can subpoena a CPA or nearly anyone else to testify against a taxpayer.
