subject: You Should Know These Four Options About Offshore Disclosure [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. With the off-the-shelf deals previously offered, the terms of the settlement were known and predictable. Now that the 2009 and 2011 offshore voluntary disclosure initiatives (OVDI) have ended, the IRS has not yet issued a new OVDI, so many non-compliant taxpayers are wondering if they should come forward and what the cost of coming forward will be. These are the four options still available.
Option One: Stick your head in the sand and pray the Internal Revenue Service never catches you. Perhaps your account is at a bank that you believe 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 unreported accounts.
This is an important caveat. The chances are that the IRS does not discover hidden accounts gets more and more remote. Why? Because in order to compete for US customer and capital, foreign banks are coerced into complying with the Internal Revenue Service. That's right --- foreign banks take their marking orders from the IRS as well. So if the IRS wants information on US holders of foreign accounts, the IRS 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 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.
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 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. Expatriation may make sense to avoid future tax liabilities , but you have to report the existence of secret financial accounts first.
The third option is to simply file amended returns and not explicitedly tell 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 disadvantages are that you may give the Internal Revenue Service a very handy clue to charge you criminally, and if caught, you are experience a pain of high penalties and a possibility of criminal charges.
The IRS 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 people whose "Quiet Disclosures" were discovered by the IRS.
There are other problems with "Quiet Disclosures." One massive failing is that they do not remedy 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 quiet disclosure does not go far enough to eradicate any likelihood 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 IRS 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 OVDI has passed, it is not too late. The only deal that expired on August 31, 2011 was the specific standards terms of the 2011 disclosure. It was simply a pre-agreed upon penalty structure. The Internal revenue service always welcomes voluntary disclosures.
There are two main requirements. First, the taxpayer cannot already be under examination or investigation. And second, the foreign accounts cannot be connected to any criminal activity think currency laundering or drug trafficking. Once these qualifications are met, criminal crimes are removed from the continuum of possibilities and the case is referred to the regular civil assessment division for assessment of taxes, interest and penalties. A voluntary disclosure offers reduced penalties and a guarantee of no criminal prosecution. Although fines and penalties may be noteworthy, that's just a bill, they are insignificant compared to an .
If someone is still questioning what the suitable course of action is, it is imperative that they only speak to a qualified foreign tax law firm. The attorney-client privilege only applies when speaking to an attorney. The Internal Revenue Service can subpoena a CPA or nearly anyone else to give evidence against a taxpayer.
