subject: Do You Know Your Options With Ovdi 2012 [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 taxpayers in non-compliance, the Internal Revenue Service ran two offshore voluntary disclosure initiatives (OVDI). The last one expired on August 31, 2011. For those people wondering what to do, this article discusses their four remaining options.
The first option available is to roll the dice and pray for a miracle. The benefit is that it costs zero to do, and there is certainly a likelihood of greater than zero, no matter how minor, that the taxpayer can get away with the crime. The disadvantages are that if discovered, the penalties are harsh. In both monetary 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 American is still by far the largest ecomony in the world and has the richest population by far. Every foreign bank must compete for American customers. And in order to do so, these banks must comply with what the IRS tell them to. Part of being on the good side of the IRS is to disclose what the IRS says to cough up. As a result the foreign bank is really at the mercy of the IRS.meaning so are the banks' account holders. So you see, hiding becomes a more dangerous and dangerous. And once the Internal Revenue Service starts an investigation, there are no option left exceptpay 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 this is the only way to escape the taxing jurisdiction of the IRS. But be warned --- expatriation only works to avoid upcoming tax debts and conformity problems. The only method to properly renounce is to fundamentally come forward about all offshore bank assets and actually pay an expatriation tax (in many ways it was easier to leave Soviet Block country than to leave the USA completely intact with your wealth.)
The third option is to simply file amended returns and not explicitedly tell the IRS that you are seeking to come clean. This is known as a "quiet" or "soft" disclosure. The advantage is that there is little upfront cost to this. But the disadvantages are that you may give the IRS a very handy clue to charge you criminally, and if caught, you are see high penalties and a nasty and real possibility of criminal charges.
The Internal revenue service says that these amended returns 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 massive failing is that a soft disclosure does not remedy the issue 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 likelihood of criminal charges. In fact, the 1040X might --- well here's the massive problem with this option --- the soft disclosure 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 IRS a roadmap to find you.
The forth option is a pre-emptive disclosure and subsequent negotiation of the penalties. This is the optimal solution. Even though the time to file under the 2011 initiative has passed, there is time to act. The only deal that expired on August 31, 2011 was the particular standards terms of the 2011 disclosure. It was simply a pre-agreed upon penalty structure. The IRS always welcomes voluntary disclosures.
There are 2 main requirements. First, the taxpayer can't already be under audit or investigation. And next, the foreign financial accounts cannot be connected to criminal activity think money laundering or drug trafficking. Once these prerequisites are satisfied, any criminal charges are removed from the continuum of possibilities and the case is sent to the regular civil assessment division for assessment of taxes, interest and penalties. A voluntary disclosure offers reduced penalties and a promise of no criminal prosecution. Even though fines and penalties may be noteworthy, they are insignificant compared to an .
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified Offshore tax lawyers, skilled in offshore compliance and delicate IRS negotiations.
