subject: What You Want To Know About Irs Offshore Voluntary Disclosure [print this page] The IRS has authority to tax income from around the globe. The IRS 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. The IRS offered two previous offshore voluntary disclosure initiatives. One in 2009 and the last one in 2011. The last one expired on August 31, 2011. For those citizens wondering what to do, this article discusses their 4 remaining options.
The first option is to do nothing except hope and pray. The benefit is that it costs nothing to do, and there is certainly a likelihood of greater than zero, no matter how small, that the taxpayer can get away with the crime. The downside that is if learned, there is an incredible emotional strain for anyone who become a criminal defendant. Even if acquitted, the entire process will be the most arduous time of someone's life. Even if found not guilty, a criminal trial is still incredibly costly.
Here's the thing every global banking and financial institution must be in the American market otherwise it would become such a small time player that the foreign bank's corporate board would revolt. Despite everything you may have heard, the American is still by far the largest economy in the world and every global foreign bank must be on the good side of the IRS otherwise that bank will be shut out of getting US capital or customers! Part of being on the good side of the IRS is to disclose what the IRS says to disclose. So the foreign 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 riskier and riskier. And once the IRS starts seeking a criminal indictment, there is only one option leftpay 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 complicated. Furthermore, 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 American, 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 hidden accounts first.
Option 3: Soft (or quiet) disclosure. An option that some citizens attempted is to file amended tax forms 1040X's and mail them to the Internal revenue service just think "regular" 1040X's, pay the taxes, and hope the Internal Revenue Service won't figure out what was going on. Sounds think a good strategy, right? Perhaps one could avoid all those excessive penalties of the OVDI programs?
The Department of Justice states that it has begun prosecutions on people who have attempted soft disclosures. So this option has some serious problems
The "soft" disclosure option is incredibly risky for several reasons. One massive failing is that they do not address the issue of the taxpayer's failure to report the bank account on the FBAR; as a willful failure to file an FBAR is a criminal charge. So simply filing a quiet disclosure does not go far enough to remove any likelihood of criminal investigations. In fact, the 1040X may --- well here's the massive problem with this alternative --- the quiet disclosure does nothing concerning 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 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, there is time to act. The only thing that expired on August 31, 2011 was the particular standards terms of the 2011 disclosure. It was simply a pre-agreed upon penalty arrangement. The Internal revenue service always welcomes voluntary disclosures.
There are 2 main requirements. First, the taxpayer cannot already be under examination or investigation. And second, the foreign assets can't be connected to any criminal activity like currency laundering or drug trafficking. Once these prerequisites are satisfied, any criminal indictments come off the table and the taxpayer's is sent to the regular civil assessment division for assessment of taxes, interest and penalties. A successful OVDI offers reduced penalties and a guarantee of absolutely no criminal charges. Even though fines and penalties may be considerable, 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 lawyers, experienced in overseas compliance and sensitive Internal Revenue Service negotiations.
