subject: The Four Options For Ovdi You Must Know Now [print this page] So many taxpayers got caught off guard with the recent attention the Internal Revenue Service is giving holders of offshore foreign bank accounts. So what to do? The last offshore voluntary disclosure initiative (OVDI) ended on August 31, 2011. With that in mind, here are the four options currently available to those wondering what to do.
Option One: Do nothing. You could do nothing and hope that the Internal Revenue Service does not come across the foreign bank account. Perhaps your 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-American passport. Well, it used to be that a foreign bank account's actual owner could be kept anonymous. However, now, the IRS has vastly many more weapon at its disposal than it ever did previously to find hidden accounts.
This is an fundamental disadvantage. The chances are that the IRS does not discover previously 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 IRS as well. So if the Internal Revenue Service wants information on US holders of foreign accounts, the Internal Revenue Service will get that information. The Internal Revenue Service 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 IRS has the manpower and field agents in every major city around the globe.
The next option is to renounce citizenship and depart the country --- as this is the only way to escape the taxing jurisdiction of the IRS. But be warned --- this only works to avoid future tax debts and compliance troubles. The only way to correctly relinquish is to fundamentally come forward about all offshore foreign 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.)
This third way is to quietly filed amended 1040X's and not mention to 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 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.
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 people who attempted to utilize the "soft" disclosure process.
There are other problems with "Quiet Disclosures." One reason is that they do not remedy the matter of the taxpayer's non-compliance in FBAR filing; as a willful failure to file an FBAR is a criminal charge. As a result filing a soft disclosure 't go far enough to remove any likelihood of criminal investigations. In fact, the amended return might --- well here's the terrific dilemma with this option --- the soft disclosure does nothing about the failure to the FBAR. 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 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 disclosure under the 2011 OVDI has expired, it is not too late. The only thing that passed on August 31, 2011 was the particular off-the-shelf terms of the 2011 disclosure. The 2011 OVDI was simply a pre-agreed upon penalty arrangement. The IRS always welcomes voluntary disclosures.
There are two main requirements. First, the taxpayer can't already be under examination or investigation. And second, the foreign accounts can't be connected to any criminal activity like currency laundering or drug trafficking. Once these qualifications are met, criminal indictments come off the table and the case is sent to the civil division for assessment of taxes, interest and penalties. A successful OVDI offers reduced penalties and a guarantee of absolutely no criminal charges. Although fines and penalties may be substantial, they are insignificant compared to an .
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified OVDI attorneys, experienced in offshore compliance and sensitive Internal Revenue Service negotiations.
