Do You Know Your Choices With Voluntary Disclosure

And the IRS demands to know where all the taxpayers foreign accounts are located --- it is a crime to keep these 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 taxpayers wondering what to do, this piece discusses their four remaining options.

Option One: Stick your head in the sand and hope that the Internal Revenue Service never catches you. Perhaps your 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-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 previously unreported accounts.


Here's the thing - despite what you hear, the US is still by far the largest ecomony in the world and has the richest population by far. Every foreign bank must compete for American customers. And in order to do so, these banks must comply with what the Internal Revenue Service tell them to. In order to be on the good side of the IRS is to cough up what the Internal Revenue Service says to disclose. Therefore the foreign bank is really at the mercy of the Internal Revenue Service-.meaning so are the banks' foreign account holders. So you see, hiding behind the shadows becomes riskier and riskier. And once the Internal Revenue Service starts seeking a criminal indictment, there is only one option left-pay outrageous taxes and the highest penalties and face the significant possibility of real jail time.

Option 2: Renounce citizenship; Leave the country. There is only way to escape the jurisdiction of the IRS taxing authority. That is, to renounce one's citizenship and no longer be a American citizen. The process is complicated. Additionally, a requirement of proper 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 American, meaning nothing was accomplished and you are still subject to all the requirements of the tax code. Renouncing your citizenship only gets rid of future tax liabilities, but you have to report the existence of unreported financial accounts first.

The third option is to quietly filed amended 1040X's and not explicitedly tell the Internal Revenue Service that you are seeking to voluntarily disclose. This is known as a "quiet" or "soft" disclosure. This is basically a "cheap" alternative and that's is only advantage . But the disadvantages are that you may give the Internal Revenue Service a roadmap to charge you criminally, and if you are caught, you are experience a pain of high penalties and a nasty and real possibility of criminal charges.

The Internal revenue service says that these 1040X's are "red flags." Even though the tax returns are amended and back taxes paid, the IRS 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 reason is that they do not remedy the issue 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. So filing a soft disclosure does not go far enough to remove any likelihood of criminal charges. In fact, the amended return might --- well here's the terrific dilemma with this alternative --- 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 locate you.

Option 4: Pre-emptive Disclosure and Negotiation (" Offshore Voluntary Disclosure Initiative") This is the best option. Even though the time to disclosure under the 2011 initiative has passed, it is not too late. The only deal that expired on August 31, 2011 was the particular 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 2 main requirements. First, the taxpayer cannot already be under examination or investigation. And next, the foreign accounts cannot be connected to any criminal activity - think money laundering or drug trafficking. Once these qualifications are met, criminal charges come off the table and the taxpayer's 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 significant, that's just a bill, they are insignificant compared to an .

If someone is still questioning what the suitable course of action is, it is imperative that they only speak to a experienced overseas 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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