The IRS has power to impose a tax on 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. The IRS offered two previous offshore voluntary disclosure initiatives. One in 2009 and the last one in 2011. The last one expired on August 31, 2011. For those people thinking what to do, this piece talks about their 4 remaining options.
Option One: Stick your head in the sand and hope the IRS never catches you. Perhaps your foreign foreign bank 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-American passport. Well, it used to be that a foreign bank account's true owner could be kept anonymous. However, now, the Internal Revenue Service has vastly many more tools than it did previously to find hidden accounts.
Here's the thing - despite what you hear, the American is still by far the largest ecomony in the world and has the richest population by far. Every foreign foreign bank must compete for US customers. And in order to do so, these banks must comply with what the IRS tell them to. Part of being on the good side of the Internal revenue service is to disclose what the Internal Revenue Service says to cough up. So the bank is really at the mercy of the Internal Revenue Service-.meaning so are the banks' foreign account holders. So you see, hiding becomes riskier and riskier. And once the Internal Revenue Service starts an investigation, there are no option left except-pay outrageous taxes and the highest penalties and face the significant possibility of real jail time.
The next option is to renounce nationality and depart the country --- as there is no other way to escape the power of the IRS. But be warned --- expatriation only will dodge future tax debts and conformity problems. The lone method to correctly forsake is to essentially come forward about all overseas foreign bank financial records and actually pay an expatriation excise (many commenters have noted that it was easier to leave cold war USSR with your wealth intact than the modern day USA. .)
The third option is to quietly filed amended 1040X's and not mention to the IRS that you are seeking to come clean. This is known as a "quiet" or "soft" disclosure. This is basically a "cheap" alternative and that's is only advantage . But the horrible possibilities are that you may give the IRS a very handy clue to charge you criminally, and if 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 people who attempted to utilize the "soft" disclosure process.
There are other problems with "Quiet Disclosures." One massive failing is that they do not remedy the problem 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 simply filing a quiet disclosure 't go far enough to eradicate any possibility of criminal charges. In fact, the 1040X may --- well here's the massive problem with this alternative --- the soft 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 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 importance, 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 Internal Revenue Service always welcomes offshore disclosures. The only deadline that was missed was the particular stipulations of the 2011 OVDI which capped certain penalties.
There are 2 main requirements. First, the taxpayer cannot already be under audit or criminal investigation. And second, the foreign accounts cannot be connected to criminal activity - think money laundering or drug trafficking. Once these qualifications are satisfied, any criminal charges come off the table and the case is sent to the civil 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 considerable, they are insignificant compared to an .
If someone is still questioning what the appropriate course of action is, it is critical that they only talk to a experienced offshore tax attorney. The attorney-client privilege only applies when speaking to an attorney. The IRS can subpoena a CPA or nearly anyone else to testify against a taxpayer.
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