subject: Are You Well Informed Of Your Voluntary Disclosure 2012 Options [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 IRS about foreign accounts if their value exceeds $10,000.00 by filing an FBAR form every June. For those people in non-compliance, the IRS ran two offshore voluntary disclosure initiatives (OVDI). The last one passed on August 31, 2011. For those people wondering what to do, this article discusses their four remaining options.
Option One: Do nothing. You could do nothing and hope that the Internal Revenue Service does not find out the foreign bank account. Perhaps your foreign bank account is at a foreign bank that you believe to be "off the radar" or is in a quiet country, 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 tools than it ever did previously to find unreported accounts.
Here's the thing despite what you hear, the American 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 cough up what the Internal Revenue Service says to cough up. As a result the bank is really at the mercy of the Internal Revenue Service.meaning so are the banks' foreign account holders. So you see, hiding behind the shadows becomes a more dangerous and dangerous. 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 Internal Revenue Service? 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 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 US, 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 inform the IRS about the existence of undisclosed accounts first.
The third option is to quietly filed amended 1040X's and not explicitedly tell the Internal Revenue Service 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 disadvantages are that you may give the IRS a roadmap to charge you criminally, and if caught, you are experience a pain of high penalties and a nasty and real possibility of criminal charges.
There may be serious problems with this alternative. One major drawback is that the Department of Justice states that it has begun criminal proceeding against taxpayers who attempted to utilize the "soft" disclosure process.
The "soft" disclosure option is incredibly risky for several reasons. One massive failing is that a soft disclosure does not address the problem 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 quiet disclosure 't go far enough to eradicate any possibility of criminal charges. In fact, the 1040X might --- well here's the massive 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 locate 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 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.
If someone is still wondering what the proper course of action is, it is critical that they only talk to a experienced foreign tax lawyer. The attorney-client privilege only applies in communications to an lawyer. The IRS can subpoena nearly anyone else to give evidence against a taxpayer.
