Don't Play With The IRS & IRS And Offshore Accounts

Don't Play With The IRS & IRS And Offshore Accounts

The IRS has authority to tax 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 passed on August 31, 2011. For those people thinking what to do, this article discusses their four remaining options.

The first option available is to roll the dice and pray for a miracle. The benefit is that it costs nothing to do, and there is certainly a possibility, no matter how slight, that the taxpayer can get away with the crime. The disadvantages are that if caught, the penalties are severe. In both financial cost and in emotional drain of being charged with a federal crime. Even if found not guilty, a criminal trial is still incredibly costly.


Here's the thing - every global banking and financial organization must be in the US marketplace or it would become such a small time player that the bank's shareholders would revolt and replace management --- immediately. Despite everything you may have heard, the US is still by far the largest economy in the world and every global foreign bank must be on the good side of the IRS - otherwise that foreign bank will be shut out of getting American capital or customers! In order to be on the good side of the Internal revenue service is to cough up what the IRS says to disclose. Accordingly the bank is really at the mercy of the Internal Revenue Service-.meaning so are the banks' account holders. So you see, hiding becomes a more dangerous and dangerous. And once the IRS starts seeking a criminal indictment, there are no option left except-pay outrageous taxes and the highest penalties and face the significant possibility of real jail time.

The second option is to renounce nationality and leave the country --- as this is the only way to escape the taxing jurisdiction of the IRS. But be warned --- this only will avoid upcoming tax debts and compliance troubles. The only way to properly relinquish is to fundamentally come clean about all offshore bank accounts and actually forfeit 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 IRS 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 Department of Justice claims that it has also begun prosecution of people 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 remedy 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. So filing a quiet disclosure 't go far enough to eradicate any likelihood of criminal investigations. In fact, the amended return might --- well here's the terrific dilemma with this option --- the soft disclosure 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 find you.

The forth option is a pre-emptive disclosure and subsequent negotiation of the penalties. This is the optimal solution. Even though the time to disclosure under the 2011 OVDI 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 OVDI. It was simply a pre-agreed upon penalty structure. The IRS always welcomes voluntary disclosures.

There are only 2 requirements. Initially, the taxpayer can not be under audit. Also, the source of the money in the foreign bank accounts can not be from an illegal source. Like drug trafficking or money laundering.

If someone is still wondering what the suitable course of action is, it is critical that they only speak to a qualified offshore tax lawyer. The attorney-client privilege only applies in communications to an attorney. The IRS can subpoena a CPA or nearly anyone else to give evidence against a taxpayer.

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