subject: Are You Effectively Informed Of Your Fbar Voluntary Disclosure Options [print this page] The Internal Revenue Service has authority to impose a tax on 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 Internal Revenue Service about foreign accounts if their value exceeds $10,000.00 by filing an FBAR form every June. For those taxpayers in non-compliance, the IRS ran two offshore voluntary disclosure initiatives (OVDI). The last one passed on August 31, 2011. For those people wondering what to do, this piece talks about their four remaining options.
The first option is to do nothing except hope and pray. The advantage is that it costs zero to do, and there is certainly a possibility, no matter how minor, that the taxpayer can get away with the crime. The disadvantages are that if caught, 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.
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 American 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 Internal Revenue Service as well. So if the Internal Revenue Service wants information on American holders of foreign accounts, the Internal Revenue Service will get that information. The Internal Revenue Service will also run names of other individuals it suspects of being US citizens but who opened their accounts with foreign passports. The IRS 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 second option is to renounce citizenship and leave the country --- as this is the only way to escape the taxing jurisdiction of the IRS. But be warned --- this only works to dodge future tax debts and compliance problems. The only way to properly renounce is to effectively come forward about all offshore bank financial accounts 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 quietly filed amended 1040X's and not explicitedly tell the IRS that you are seeking to voluntarily disclose. This is known as a "quiet" or "soft" disclosure. This is basically a "cheap" alternative and that's is only advantage . But the horrible possibilities are that you may give the Internal Revenue Service 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 Department of Justice states that it has begun prosecutions on people who have attempted soft disclosures. So this option has some serious problems
There are other problems with "Quiet Disclosures." One massive failing is that they do not remedy the issue of the taxpayer's failure to report the bank account on the FBAR; failing to filing an FBAR can be a criminal charge just by itself. As a result simply filing a soft disclosure 't go far enough to eliminate any possibility of criminal investigations. In fact, the 1040X might --- well here's the terrific dilemma with this alternative --- 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 roadmap to find you.
Option 4: Pre-emptive Disclosure and Negotiation (" Offshore Voluntary Disclosure Initiative") If enjoying the rest of your life is chief concern, there can be no question that this alternative is the best option. Yes, the 2011 initiative expired, but that does not mean a voluntary disclosure can not be filed. The Internal Revenue Service always welcomes offshore disclosures. The only deadline that was missed was the particular terms of the 2011 OVDI which capped certain penalties.
There are only two requirements. Initially, the taxpayer can not be under examination. In addition, the source of the funds in the foreign bank accounts can not be from an illegal source. Like drug trafficking or money laundering.
If someone is still questioning what the proper course of action is, it is imperative that they only talk to a qualified offshore tax lawyer. The attorney-client privilege only applies when speaking to an lawyer. The Internal Revenue Service can subpoena a CPA or nearly anyone else to give evidence against a taxpayer.
