Don" t Gamble When It Comes To Offshore Voluntary Disclosure Program
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: Stick your head in the sand and hope the IRS never catches you. Perhaps your foreign foreign bank 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 actual owner could be kept anonymous. However, now, the Internal Revenue Service has vastly many more weapon at its disposal than it did previously to find undisclosed accounts.
This is an fundamental disadvantage. The chances are that the Internal Revenue Service does not discover undisclosed 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 Internal Revenue Service. 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 Internal Revenue Service 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 . Expatriation may make sense to avoid future tax liabilities , but you have to disclose the existence of undisclosed accounts first.
The third option 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. The advantage is that there is little upfront cost to this. 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 possibility of criminal charges.
The Internal revenue service says that these amended returns are "red flags." Even though the tax returns are amended and back taxes paid, the IRS 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 massive failing is that they do not remedy the matter of the taxpayer's non-compliance in FBAR filing; as a willful failure to file an FBAR is a criminal charge. So simply filing a quiet disclosure does not go far enough to remove any likelihood of criminal investigations. In fact, the 1040X may --- well here's the problem with this option --- the quiet disclosure does nothing concerning the failure to FBAR forms. 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 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 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 provisions of the 2011 OVDI which capped certain penalties.
There are only two requirements. Initially, the taxpayer can not be under examination. Also, the source of the funds in the foreign bank accounts can not be from an illegal source. Think drug trafficking or money laundering.
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified OVDI attorneys, skilled in foreign compliance and sensitive IRS negotiations.
Option One: Stick your head in the sand and hope the IRS never catches you. Perhaps your foreign foreign bank 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 actual owner could be kept anonymous. However, now, the Internal Revenue Service has vastly many more weapon at its disposal than it did previously to find undisclosed accounts.
This is an fundamental disadvantage. The chances are that the Internal Revenue Service does not discover undisclosed 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 Internal Revenue Service. 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 Internal Revenue Service 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 . Expatriation may make sense to avoid future tax liabilities , but you have to disclose the existence of undisclosed accounts first.
The third option 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. The advantage is that there is little upfront cost to this. 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 possibility of criminal charges.
The Internal revenue service says that these amended returns are "red flags." Even though the tax returns are amended and back taxes paid, the IRS 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 massive failing is that they do not remedy the matter of the taxpayer's non-compliance in FBAR filing; as a willful failure to file an FBAR is a criminal charge. So simply filing a quiet disclosure does not go far enough to remove any likelihood of criminal investigations. In fact, the 1040X may --- well here's the problem with this option --- the quiet disclosure does nothing concerning the failure to FBAR forms. 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 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 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 provisions of the 2011 OVDI which capped certain penalties.
There are only two requirements. Initially, the taxpayer can not be under examination. Also, the source of the funds in the foreign bank accounts can not be from an illegal source. Think drug trafficking or money laundering.
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified OVDI attorneys, skilled in foreign compliance and sensitive IRS negotiations.
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