Offshore Voluntary Disclosure Program Do You Know Your Options
The IRS has power 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. For those citizens 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.
Option One: Stick your head in the sand and pray that the IRS never catches you. Perhaps your account is at a foreign bank that you think to be "off the radar" or is in a quiet jurisdiction, or under a friend's name, or opened with a non-American passport. Well, it used to be that a foreign bank account's true owner could be kept fairly secret. However, now, the IRS has vastly many more weapon at its disposal than it ever did previously to find hidden accounts.
Here's the thing every global banking and financial organization must be in the American market or it would turn into such a small time player that the foreign bank's corporate board would revolt and replace management --- immediately. 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 American capital or customers! In order to be on the good side of the Internal revenue service is to disclose what the Internal Revenue Service says to disclose. Consequently the bank is really at the mercy of the IRS.meaning so are the banks' foreign account holders. So you see, hiding behind the shadows becomes a more dangerous and dangerous. And once the Internal Revenue Service starts an investigation, there are no option left exceptpay outrageous taxes and the highest penalties and face the significant possibility of real jail time.
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 complicated. Also, 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 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 report the existence of hidden financial accounts first.
The third option is to quietly filed amended 1040X's and not mention to the Internal Revenue Service that you are seeking to voluntarily disclose. This is known as a "quiet" or "soft" disclosure. The advantage is that there is little upfront cost to this. But the horrible possibilities are that you may give the Internal Revenue Service a roadmap to charge you criminally, and if caught, you are experience a pain of 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 address the matter 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. So filing a soft disclosure does not go far enough to eliminate any possibility of criminal charges. In fact, the 1040X might --- well here's the massive problem with this option --- the soft disclosure 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 very handy to locate you.
The forth option is a pre-emptive disclosure and subsequent negotiation of the penalties. If enjoying the rest of your life is chief concern, there can be no doubt 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 IRS always welcomes offshore disclosures. The only deadline that was missed was the particular conditions of the 2011 OVDI which capped certain penalties.
There are only two requirements. Initially, the taxpayer can not be under audit. Also, the source of the funds in the foreign bank accounts can not be from an illegal source. Think drug trafficking or money laundering.
If someone is still wondering what the suitable course of action is, it is imperative that they only talk to a qualified overseas tax law firm. The attorney-client privilege only applies in communications to an attorney. The IRS can subpoena a CPA or nearly anyone else to testify against a taxpayer.
Option One: Stick your head in the sand and pray that the IRS never catches you. Perhaps your account is at a foreign bank that you think to be "off the radar" or is in a quiet jurisdiction, or under a friend's name, or opened with a non-American passport. Well, it used to be that a foreign bank account's true owner could be kept fairly secret. However, now, the IRS has vastly many more weapon at its disposal than it ever did previously to find hidden accounts.
Here's the thing every global banking and financial organization must be in the American market or it would turn into such a small time player that the foreign bank's corporate board would revolt and replace management --- immediately. 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 American capital or customers! In order to be on the good side of the Internal revenue service is to disclose what the Internal Revenue Service says to disclose. Consequently the bank is really at the mercy of the IRS.meaning so are the banks' foreign account holders. So you see, hiding behind the shadows becomes a more dangerous and dangerous. And once the Internal Revenue Service starts an investigation, there are no option left exceptpay outrageous taxes and the highest penalties and face the significant possibility of real jail time.
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 complicated. Also, 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 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 report the existence of hidden financial accounts first.
The third option is to quietly filed amended 1040X's and not mention to the Internal Revenue Service that you are seeking to voluntarily disclose. This is known as a "quiet" or "soft" disclosure. The advantage is that there is little upfront cost to this. But the horrible possibilities are that you may give the Internal Revenue Service a roadmap to charge you criminally, and if caught, you are experience a pain of 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 address the matter 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. So filing a soft disclosure does not go far enough to eliminate any possibility of criminal charges. In fact, the 1040X might --- well here's the massive problem with this option --- the soft disclosure 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 very handy to locate you.
The forth option is a pre-emptive disclosure and subsequent negotiation of the penalties. If enjoying the rest of your life is chief concern, there can be no doubt 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 IRS always welcomes offshore disclosures. The only deadline that was missed was the particular conditions of the 2011 OVDI which capped certain penalties.
There are only two requirements. Initially, the taxpayer can not be under audit. Also, the source of the funds in the foreign bank accounts can not be from an illegal source. Think drug trafficking or money laundering.
If someone is still wondering what the suitable course of action is, it is imperative that they only talk to a qualified overseas tax law firm. The attorney-client privilege only applies in communications to an attorney. The IRS can subpoena a CPA or nearly anyone else to testify against a taxpayer.
