And the Internal Revenue Service demands to know where all the taxpayers foreign accounts are located --- it is a crime to keep these foreign bank account secret if they are over $10,000.00 in value. The Internal Revenue Service offered two previous offshore voluntary disclosure initiatives. One in 2009 and the last one in 2011. The last one passed on August 31, 2011. For those people wondering what to do, this piece discusses their four remaining options.
Option One: Do nothing. You could do nothing and hope that the Internal Revenue Service does not discover the foreign bank account. Perhaps your account is at a foreign bank that you believe to be "off the radar" or is in a quiet country, or under a friend's name, or opened with a non-American passport. Well, it used to be that a bank account's true owner could be kept anonymous. However, now, the Internal Revenue Service has vastly many more tools 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 otherwise it would become such a small time player that the foreign bank's shareholders would revolt. Despite everything you may have heard, the American is still by far the largest economy in the world and every global bank must be on the good side of the Internal Revenue Service - otherwise that foreign bank will be shut out of getting American capital or customers! Part of being on the good side of the Internal revenue service is to disclose what the Internal Revenue Service says to disclose. Therefore the bank is really at the mercy of the Internal Revenue Service....meaning so are the banks' account holders. So you see, hiding becomes riskier and riskier. And once the Internal Revenue Service starts an investigation, there is only one option left...pay outrageous taxes and the highest penalties and face the significant possibility of real jail time.
The second option is to renounce citizenship and leave the country - as there is no other way to escape the power of the Internal Revenue Service. But be warned - expatriation only works to avoid future tax debts and conformity troubles. The only way to correctly forsake is to fundamentally come forward about all offshore bank accounts and actually forfeit an expatriation excise (in many ways it was easier to leave Soviet Block country than to leave the USA completely intact with your wealth.)
The third option is to quietly filed amended 1040X's and not explicitly tell the IRS 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 IRS a very handy clue to charge you criminally, and if you are caught, you are see high penalties and a 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 taxpayers who attempted to utilize the "soft" disclosure process.
The "soft" disclosure option is incredibly risky for several reasons. One reason is that a soft disclosure does not remedy the problem 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 't go far enough to remove any likelihood of criminal charges. In fact, the 1040X might - well here's the terrific dilemma with this option - it does nothing about 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 Internal revenue service a very handy to find you.
The forth option is a pre-emptive disclosure and subsequent negotiation of the penalties. This is the best option. Even though the time to disclosure under the 2011 initiative has expired, there is time to act. The only deal that passed on August 31, 2011 was the specific off-the-shelf 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 two main requirements. First, the taxpayer can't already be under audit or criminal investigation. And next, the foreign assets can't be connected to criminal activity - like currency laundering or drug trafficking. Once these qualifications are satisfied, criminal crimes come off the table and the case is referred to the civil division for assessment of taxes. A successful OVDI offers reduced penalties and a guarantee of absolutely no criminal charges. Although fines and penalties may be substantial, they are insignificant compared to an.
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified OVDI attorneys, skilled in offshore compliance and sensitive IRS negotiations.
Recent trends in tax evasion may be solved through OVDI.
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