subject: Irs Voluntary Disclosure: What Is Your Best Choice? [print this page] Several years ago, it was simple to hide foreign accounts from the IRS. Since 9/11, though all that has altered is the Internal revenue service has become much more smart in finding information. In fact, the Internal revenue service already has the data on where these accounts are and who they belong to, they are just too busy sorting through the records to find the time to prosecute everybody. Because of this, the IRS has created the IRS voluntary disclosure. The present IRS voluntary disclosure is the third version, and with each new version, the penalties rise. The current IRS voluntary disclosure has no end date. But the terms can be changed at any time..
The program works in this way:
A taxpayer finds a tax lawyer to review the facts of the case and make certain a disclosure into the IRS voluntary disclosure is the best move. In order to reconcile eight years of returns to include unreported income and missing FBARs, the tax attorney then has to send a letter in to the IRS. If they are able to, the taxpayer then has to pay taxes and any interest that is owed. Now, the taxpayer has two alternatives. The taxpayer can accept the standard penalty structure wich contains a 27.5% penalty on the highest account value throughout the last 8 years. This is the best decision when the taxpayer intentionally evaded taxes.
The other alternative for the taxpayer is to decide to fight for lower tax penalties rather than agreeing to the standard penalty structure. This will often result in a 5% penalty on the maximum account value. Or the account could be small enough (under $75,000) where only a 12.5% penalty can then be applied.
Regardless of your preference, the taxpayer's lawyer will have to ensure that they taxpayer's claimed income matches their bank account through a mini audit. An administrative appeal is always an option if the taxpayer does not want to go with the penalty amount and opts-out. If the taxpayer does not like the result of that, the taxpayer might take the case to US tax court. Theoretically, the US Supreme Court might wind up as the final judge of the penalty total, however that scenario is highly doubtful.
