Are You Nicely Informed Of Your Offshore Accounts Options

So many taxpayers got caught off guard with the recent attention the IRS is giving holders of offshore foreign bank accounts. So what to do? The last offshore voluntary disclosure initiative (OVDI) ended on August 31, 2011. These are the four options still available.

Option One: Do nothing. You could do nothing and hope that the IRS does not discover the 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-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 undisclosed 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 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. As a result the foreign bank is really at the mercy of the IRS-.meaning so are the banks' foreign account holders. So you see, hiding becomes a more dangerous and dangerous. 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 leave the country --- as this is the only way to escape the taxing jurisdiction of the Internal Revenue Service. But be warned --- this only works to dodge upcoming tax debts and conformity troubles. The lone technique to properly abandon is to effectively come forward about all offshore foreign bank assets and actually pay an expatriation tax (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 mention to 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 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 Internal revenue service tells says that account holders will still face penalties and criminal charges. In addition to charging and prosecuting people with undeclared foreign income, the DOJ claims that it has also begun prosecution of citizens whose "Quiet Disclosures" were discovered by the IRS.

There are other problems with "Quiet Disclosures." One reason is that they do not address the matter of the taxpayer's non-compliance in FBAR filing; 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 eliminate any possibility of criminal charges. In fact, the 1040X may --- well here's the massive problem with this alternative --- 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.

Option 4: Pre-emptive Disclosure and Negotiation (" Offshore Voluntary Disclosure Initiative") This is the best option. Even though the time to file under the 2011 initiative has expired, there is time to act. The only deal that passed on August 31, 2011 was the specific standards terms of the 2011 OVDI. It was simply a pre-agreed upon penalty arrangement. The Internal revenue service always welcomes voluntary disclosures.

There are only 2 requirements. First, the taxpayer can not be under examination. In addition, 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 critical that they only talk to a qualified overseas tax law firm. The attorney-client privilege only applies in communications to an lawyer. The Internal Revenue Service can subpoena a CPA or nearly anyone else to testify against a taxpayer.

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