Knowing These 4 Options About Voluntary Disclosure Program Will Save Your Neck
If you are an American taxpayer with an offshore accounts that you thought were secret, you must bring it into compliance that is file missing FBARs and include any missing income on amended tax returns. 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: Do nothing. You could do nothing and hope that the Internal Revenue Service does not uncover the foreign bank account. Perhaps your account is at a foreign bank that you think 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 IRS has vastly many more weapon at its disposal than it did previously to find unreported accounts.
This is an fundamental disadvantage. The chances are that the IRS does not discover unreported accounts gets smaller and smaller. Why? Because in order to compete for US 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 IRS as well. So if the IRS 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 Internal Revenue Service has incredible investigative powers --- powers it never had before.
Option 2: Renounce citizenship; Leave the country. Do you want to say goodbye to the IRS? 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. Furthermore, a requirement of recognizable expatriation is that you have 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 report the existence of previously unreported financial 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 like a fool-proof game-plan? Perhaps one could avoid all those excessive penalties of the OVDI programs?
The Internal revenue service says that these 1040X's are "red flags." Even though the tax returns are amended and back taxes paid, the Internal revenue service tells says that foreign 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 Internal revenue service.
The "soft" disclosure option is incredibly risky for several reasons. One reason is that they do not remedy 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 't go far enough to remove any likelihood of criminal charges. In fact, the 1040X might --- well here's the massive problem with this option --- it does nothing about 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 find you.
Option 4: Pre-emptive Disclosure and Negotiation (" Offshore Voluntary Disclosure Initiative") This is the best option. Even though the time to file under the 2011 initiative has expired, there is time to act. The only thing that passed on August 31, 2011 was the particular standards terms of the 2011 OVDI. The 2011 OVDI was simply a pre-agreed upon penalty structure. The Internal revenue service always welcomes voluntary disclosures.
There are 2 main requirements. First, the taxpayer cannot already be under examination or criminal investigation. And second, the foreign financial accounts can't be connected to criminal activity think currency laundering or drug trafficking. Once these prerequisites are met, 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 voluntary disclosure offers reduced penalties and a promise of no criminal prosecution. Even though fines and penalties may be significant, that's just a bill, they are insignificant compared to an .
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified OVDI attorneys, experienced in foreign compliance and delicate IRS negotiations.
Option One: Do nothing. You could do nothing and hope that the Internal Revenue Service does not uncover the foreign bank account. Perhaps your account is at a foreign bank that you think 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 IRS has vastly many more weapon at its disposal than it did previously to find unreported accounts.
This is an fundamental disadvantage. The chances are that the IRS does not discover unreported accounts gets smaller and smaller. Why? Because in order to compete for US 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 IRS as well. So if the IRS 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 Internal Revenue Service has incredible investigative powers --- powers it never had before.
Option 2: Renounce citizenship; Leave the country. Do you want to say goodbye to the IRS? 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. Furthermore, a requirement of recognizable expatriation is that you have 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 report the existence of previously unreported financial 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 like a fool-proof game-plan? Perhaps one could avoid all those excessive penalties of the OVDI programs?
The Internal revenue service says that these 1040X's are "red flags." Even though the tax returns are amended and back taxes paid, the Internal revenue service tells says that foreign 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 Internal revenue service.
The "soft" disclosure option is incredibly risky for several reasons. One reason is that they do not remedy 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 't go far enough to remove any likelihood of criminal charges. In fact, the 1040X might --- well here's the massive problem with this option --- it does nothing about 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 find you.
Option 4: Pre-emptive Disclosure and Negotiation (" Offshore Voluntary Disclosure Initiative") This is the best option. Even though the time to file under the 2011 initiative has expired, there is time to act. The only thing that passed on August 31, 2011 was the particular standards terms of the 2011 OVDI. The 2011 OVDI was simply a pre-agreed upon penalty structure. The Internal revenue service always welcomes voluntary disclosures.
There are 2 main requirements. First, the taxpayer cannot already be under examination or criminal investigation. And second, the foreign financial accounts can't be connected to criminal activity think currency laundering or drug trafficking. Once these prerequisites are met, 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 voluntary disclosure offers reduced penalties and a promise of no criminal prosecution. Even though fines and penalties may be significant, that's just a bill, they are insignificant compared to an .
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified OVDI attorneys, experienced in foreign compliance and delicate IRS negotiations.
