subject: Are You Well Informed Of Your Irs Voluntary Disclosure Options [print this page] So many people 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: Stick your head in the sand and hope that the Internal Revenue Service never catches you. Perhaps your foreign foreign bank account is at a 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 true owner could be kept fairly secret. However, now, the Internal Revenue Service has vastly many more weapon at its disposal than it ever did previously to find previously unreported accounts.
This is an important caveat. The chances are that the IRS does not discover hidden 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 American holders of foreign accounts, the Internal Revenue Service 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 Internal Revenue Service? There is only one way to do it. That is, to renounce one's citizenship and no longer be a American citizen. The process is not as easy as you may think. Also, a requirement of recognizable 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. Expatriation may make sense to avoid future tax liabilities , but you have to inform the IRS about the existence of unreported accounts first.
Option 3: Soft (or quiet) disclosure. One option is to file amended returns, this time including previously unreported income simply filing the returns as if it were simply forgotten income. Doesn't this seems think a fool-proof game-plan? Perhaps one could avoid all those excessive penalties of the OVDI programs?
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 Department of Justice claims that it has also begun prosecution of taxpayers whose "Quiet Disclosures" were discovered by the IRS.
There are other problems with "Quiet Disclosures." One reason is that a soft disclosure does not address the matter of the taxpayer's non-compliance in FBAR filing; failing to filing an FBAR can be a criminal charge just by itself. So filing a soft disclosure does not go far enough to eliminate any possibility of criminal charges. In fact, the amended return may --- well here's the problem with this alternative --- it 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 best option. Even though the time to file under the 2011 OVDI has expired, there is time to act. The only deal that expired on August 31, 2011 was the specific off-the-shelf terms of the 2011 disclosure. The 2011 OVDI was simply a pre-agreed upon penalty structure. The Internal revenue service always welcomes voluntary disclosures.
There are two main requirements. First, the taxpayer can't already be under audit or investigation. And next, the foreign assets cannot be connected to any criminal activity like currency laundering or drug trafficking. Once these prerequisites are satisfied, criminal charges come off the table and the taxpayer's is referred to the regular civil assessment division for assessment of taxes, interest and penalties. A successful OVDI offers reduced penalties and a promise of no criminal prosecution. Even though fines and penalties may be substantial, that's just a bill, they are meaningless compared to an .
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified OVDI attorneys, skilled in offshore compliance and delicate Internal Revenue Service negotiations.
