subject: Voluntary Disclosure Program What Are Your 4 Options [print this page] So many people got caught off guard with the recent attention the IRS is giving holders of offshore foreign bank accounts. So what to do? The last offshore voluntary disclosure initiative (OVDI) ended on August 31, 2011. These are the four options still available.
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 possibility, no matter how slight, that the taxpayer can get away with the crime. The disadvantages are that if caught, the penalties are severe. In both financial 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 Internal Revenue Service does not discover secret accounts gets more and more remote. Why? Because in order to compete for American 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 American holders of foreign accounts, the Internal Revenue Service will get that information. The IRS will also run names of other people it suspects of being American citizens but who opened their accounts with foreign passports. The IRS has incredible investigative powers --- powers it never had before.
Option 2: Renounce citizenship; Leave the country. There is only way to escape the jurisdiction of the IRS taxing authority. That is, to renounce one's citizenship and no longer be a American citizen. The process is not as easy as you may think. Additionally, 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 the expatriation is handled improperly, the IRS treats it as a non-event, meaning you are still subject to the jurisdiction of the IRS --- indefinitely . Renouncing your citizenship only gets rid of future tax liabilities, but you have to inform the IRS about the existence of undisclosed accounts first.
This third way is to simply file amended returns and not explicitedly tell the Internal Revenue Service that you are seeking to come clean. This is known as a "quiet" or "soft" disclosure. This is basically a "cheap" alternative and that's is only advantage . But the disadvantages are that you may give the Internal Revenue Service a very handy clue to charge you criminally, and if you are caught, you are see high penalties and a nasty and real 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 citizens who attempted to utilize the "soft" disclosure process.
There are other problems with "Quiet Disclosures." One massive failing is that they do not address the problem 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 simply filing a quiet disclosure does not go far enough to remove any likelihood of criminal investigations. In fact, the amended return might --- well here's the problem with this alternative --- the soft 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 very handy to locate you.
Option 4: Pre-emptive Disclosure and Negotiation (" Offshore Voluntary Disclosure Initiative") If enjoying the rest of your life is chief importance, 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 thing that expired was the particular conditions of the 2011 OVDI which capped certain penalties.
There are only two requirements. First, the taxpayer can not be under audit. 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.
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified Offshore tax attorneys, skilled in foreign compliance and delicate Internal Revenue Service negotiations.
