The Four Options For Voluntary Disclosure Program You Should Know Now
So many taxpayers got caught off guard with the recent attention the Internal Revenue Service is giving holders of offshore foreign bank accounts. 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 pray the Internal Revenue Service never catches you. Perhaps your account is at a bank that you believe to be "off the radar" or is in a quiet jurisdiction, or under a friend's name, or opened with a non-US passport. Well, it used to be that a foreign bank account's actual 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 previously unreported accounts.
This is an important caveat. The chances are that the Internal Revenue Service does not discover unreported accounts gets more and more remote. Why? Because in order to compete for US customer and capital, foreign banks are coerced into complying with the IRS. That's right --- foreign banks take their marking orders from the Internal Revenue Service as well. So if the Internal Revenue Service wants information on US 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 US citizens but who opened their accounts with foreign passports. The Internal Revenue Service has more power and intelligence that it ever had before. The IRS has the manpower and field agents in every major city around the globe.
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 US citizen. The process is complicated. Furthermore, 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 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. Renouncing your citizenship only gets rid of future tax liabilities, but you have to disclose the existence of unreported financial accounts first.
This third way 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 disadvantages are that you may give the Internal Revenue Service a roadmap 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.
The "soft" disclosure option is incredibly risky for several reasons. One massive failing is that they do not address the issue 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. As a result filing a quiet disclosure 't go far enough to eradicate any possibility of criminal charges. In fact, the amended return might --- well here's the terrific dilemma with this option --- it does nothing concerning the failure to the FBAR. There are still criminal and civil investigations 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. This is the optimal solution. Even though the time to disclosure under the 2011 OVDI has passed, it is not too late. The only deal that expired on August 31, 2011 was the specific 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 only 2 requirements. Initially, the taxpayer can not be under examination. Also, the source of the money 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 OVDI attorneys, experienced in foreign compliance and delicate IRS negotiations.
Option One: Stick your head in the sand and pray the Internal Revenue Service never catches you. Perhaps your account is at a bank that you believe to be "off the radar" or is in a quiet jurisdiction, or under a friend's name, or opened with a non-US passport. Well, it used to be that a foreign bank account's actual 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 previously unreported accounts.
This is an important caveat. The chances are that the Internal Revenue Service does not discover unreported accounts gets more and more remote. Why? Because in order to compete for US customer and capital, foreign banks are coerced into complying with the IRS. That's right --- foreign banks take their marking orders from the Internal Revenue Service as well. So if the Internal Revenue Service wants information on US 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 US citizens but who opened their accounts with foreign passports. The Internal Revenue Service has more power and intelligence that it ever had before. The IRS has the manpower and field agents in every major city around the globe.
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 US citizen. The process is complicated. Furthermore, 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 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. Renouncing your citizenship only gets rid of future tax liabilities, but you have to disclose the existence of unreported financial accounts first.
This third way 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 disadvantages are that you may give the Internal Revenue Service a roadmap 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.
The "soft" disclosure option is incredibly risky for several reasons. One massive failing is that they do not address the issue 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. As a result filing a quiet disclosure 't go far enough to eradicate any possibility of criminal charges. In fact, the amended return might --- well here's the terrific dilemma with this option --- it does nothing concerning the failure to the FBAR. There are still criminal and civil investigations 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. This is the optimal solution. Even though the time to disclosure under the 2011 OVDI has passed, it is not too late. The only deal that expired on August 31, 2011 was the specific 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 only 2 requirements. Initially, the taxpayer can not be under examination. Also, the source of the money 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 OVDI attorneys, experienced in foreign compliance and delicate IRS negotiations.
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