Do You Know Your Choices With Offshore Accounts

And the Internal Revenue Service demands to know where all the people foreign accounts are located --- it is a crime to keep these account secret if they are over $10,000.00 in value. The IRS 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 taxpayers thinking what to do, this piece talks about their 4 remaining options.

Option One: Do nothing. You could do nothing and hope that the IRS does not come across the foreign bank account. Perhaps your account is at a foreign bank that you think 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 true owner could be kept anonymous. However, now, the Internal Revenue Service has vastly many more weapon at its disposal than it ever did previously to find hidden accounts.


This is an fundamental disadvantage. The chances are that the IRS does not discover undisclosed 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 Internal Revenue Service. That's right --- foreign banks take their marking orders from the IRS as well. So if the Internal Revenue Service wants information on US holders of foreign accounts, the IRS 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 incredible investigative powers --- powers it never had before.

Option 2: Renounce citizenship; Leave the country. There is only way to escape the jurisdiction of the Internal Revenue Service taxing authority. That is, to renounce one's citizenship and no longer be a US citizen. The process is complicated. Additionally, a requirement of recognizable expatriation is that you have 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. Expatriation may make sense to avoid future tax liabilities , but you have to inform the IRS about the existence of previously unreported financial accounts first.

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. Sounds like a good strategy, right? Perhaps one could avoid all those excessive penalties of the OVDI programs?

The Department of Justice states that it has begun prosecutions on people who have attempted soft disclosures. So this option has some serious problems

The "soft" disclosure option is incredibly risky for several reasons. One massive failing 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 possibility of criminal investigations. In fact, the 1040X might --- well here's the problem with this alternative --- it does nothing about 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.

Option 4: Pre-emptive Disclosure and Negotiation (" Offshore Voluntary Disclosure Initiative") This is the optimal solution. Even though the time to file under the 2011 OVDI has passed, it is not too late. The only thing that expired on August 31, 2011 was the specific off-the-shelf terms of the 2011 disclosure. It was simply a pre-agreed upon penalty arrangement. The IRS always welcomes voluntary disclosures.

There are two main requirements. First, the taxpayer cannot already be under examination or criminal investigation. And second, the foreign assets can't be connected to any criminal activity - like currency laundering or drug trafficking. Once these qualifications are met, criminal indictments are removed from the continuum of possibilities and the taxpayer's is referred to the civil division for assessment of taxes, interest and penalties. A successful OVDI offers reduced penalties and a guarantee of no criminal prosecution. Although fines and penalties may be noteworthy, that's just a bill, they are meaningless compared to an .

If someone is still wondering what the proper course of action is, it is imperative that they only talk to a qualified foreign tax lawyer. The attorney-client privilege only applies in communications to an lawyer. The Internal Revenue Service can subpoena a CPA or nearly anyone else to give evidence against a taxpayer.

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