Are You Nicely Knowledgeable Of Your Offshore Voluntary Disclosure Initiative

Are You Nicely Knowledgeable Of Your Offshore Voluntary Disclosure Initiative Options

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. With the off-the-shelf deals previously offered, the terms of the settlement were known and predictable. Now that the 2009 and 2011 offshore voluntary disclosure initiatives (OVDI) have ended, the Internal Revenue Service has not yet issued a new OVDI, so many non-compliant citizens are wondering if they should come forward and what the cost of coming forward will be. With that in mind, here are the four options currently available to those wondering what to do.

The first option is to do nothing except hope and pray. The benefit is that it costs zero to do, and there is certainly a possibility, no matter how slight, that the taxpayer can get away with the crime. The downside that is if caught, there is an unbelievable emotional strain for anybody who become a criminal defendant. Even if acquitted, the entire process will be the most arduous time of someone's life. Even if found not guilty, a criminal trial is still incredibly costly.


This is an important caveat. The chances are that the Internal Revenue Service does not discover secret accounts gets smaller and smaller. Why? Because in order to compete for American 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 IRS will get that information. The Internal Revenue Service will also run names of other people it suspects of being American citizens but who opened their accounts with foreign passports. The Internal Revenue Service has more power and intelligence that it ever had before. The Internal Revenue Service has the manpower and field agents in every major city around the globe.

The next option is to renounce citizenship 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 will avoid future tax debts and conformity problems. The only method to properly abandon is to effectively come forward about all overseas bank assets and actually pay an expatriation tax (many commenters have noted that it was easier to leave cold war USSR with your wealth intact than the modern day USA. .)

Option 3: Soft (or quiet) disclosure. One option is to file amended returns, this time including previously unreported income - simply filing the returns as if it were simply forgotten income. Doesn't this seems think a fool-proof game-plan? Perhaps one could avoid all those excessive penalties of the OVDI programs?

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 foreign 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 taxpayers whose "Quiet Disclosures" were discovered by the Internal revenue service.

There are other problems with "Quiet Disclosures." One massive failing is that a soft disclosure does not address the issue of the taxpayer's failure to report the bank account on the FBAR; as a willful failure to file an FBAR is a criminal charge. As a result filing a quiet disclosure does not go far enough to eradicate any possibility of criminal charges. In fact, the amended return may --- well here's the problem with this option --- it does nothing about the failure to FBAR forms. There are still criminal and civil investigations that may be pending for failing to file an FBAR, but simply give the IRS a roadmap to find you.

The forth option is a pre-emptive disclosure and subsequent negotiation of the penalties. If getting sleep at night and not worrying about going to prison is chief concern, there can be no question that this is the best option. Yes, the 2011 initiative expired, but that does not mean a voluntary disclosure can not be filed. The IRS always welcomes offshore disclosures. The only deadline that was missed was the particular stipulations of the 2011 OVDI which capped certain penalties.

There are two main requirements. First, the taxpayer can't already be under examination or investigation. And next, the foreign assets can't be connected to any criminal activity - think currency laundering or drug trafficking. Once these prerequisites are satisfied, any criminal indictments are removed from the continuum of possibilities and the case is sent to the civil division for assessment of taxes, interest and penalties. A successful OVDI offers reduced penalties and a guarantee of absolutely no criminal charges. Although fines and penalties may be substantial, they are meaningless compared to an .

If someone is still questioning what the suitable course of action is, it is critical that they only talk to a experienced overseas tax law firm. The attorney-client privilege only applies when speaking to an attorney. The Internal Revenue Service can subpoena a CPA or nearly anyone else to testify against a taxpayer.

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