subject: The 4 Options For Irs Faq Voluntary Disclosure You Must Know Now [print this page] The Internal Revenue Service has authority to tax 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 Internal Revenue Service 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 passed on August 31, 2011. For those citizens wondering what to do, this article talks about their four remaining options.
Option One: Stick your head in the sand and pray that the Internal Revenue Service never catches you. Perhaps your foreign bank account is at a bank that you think to be "off the radar" or is in a quiet jurisdiction, or under a friend's name, or opened with a non-American passport. Well, it used to be that a bank account's actual owner could be kept anonymous. However, now, the Internal Revenue Service has vastly many more tools than it did previously to find hidden accounts.
This is an fundamental disadvantage. The chances are that the IRS does not discover 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 US holders of foreign accounts, the Internal Revenue Service 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 Internal Revenue Service has more power and intelligence that it ever had before. The Internal Revenue Service has the manpower and field agents in every major city around the globe.
The second option is to renounce citizenship and depart the country --- as there is no other way to escape the power of the IRS. But be warned --- expatriation only will avoid future tax debts and conformity issues. The only way to correctly relinquish is to essentially come forward about all offshore foreign bank financial accounts 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. .)
The third option is to simply file amended returns and not mention to the IRS that you are seeking to voluntarily disclose. 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 Internal Revenue Service a roadmap to charge you criminally, and if you are caught, you are experience a pain of high penalties and a nasty and real 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 a soft disclosure does not remedy the matter 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 filing a quiet disclosure 't go far enough to eliminate any possibility of criminal charges. In fact, the amended return might --- well here's the terrific dilemma with this option --- it does nothing about 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 locate you.
Option 4: Pre-emptive Disclosure and Negotiation (" Offshore Voluntary Disclosure Initiative") This is the best option. Even though the time to file under the 2011 initiative has expired, there is time to act. The only thing that passed on August 31, 2011 was the particular standards terms of the 2011 disclosure. It was simply a pre-agreed upon penalty arrangement. The Internal revenue service always welcomes voluntary disclosures.
There are only 2 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.
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified OVDI attorneys, experienced in foreign compliance and delicate IRS negotiations.
