Knowing These Four Choices About OVDI Will Save Your Neck

Knowing These Four Choices About OVDI Will Save Your Neck

So many citizens got caught off guard with the recent attention the IRS is giving holders of offshore bank accounts. 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 taxpayers are wondering if they should come forward and what the cost of coming forward will be. These are the four options still available.

The first option is to do nothing except hope and pray. The advantage is that it costs zero to do, and there is certainly a likelihood of greater than zero, no matter how small, that the taxpayer can get away with the crime. The disadvantages are that if discovered, 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 - 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 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 Internal revenue service is to cough up what the Internal Revenue Service says to cough up. Therefore the bank is really at the mercy of the IRS-.meaning so are the banks' foreign account holders. So you see, hiding behind the shadows becomes a more dangerous and dangerous. And once the IRS 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.

The second option is to renounce nationality and depart 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 avoid future tax debts and compliance problems. The only method to properly forsake is to effectively come clean about all offshore foreign bank accounts 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. Sounds think a good strategy, right? 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 IRS 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 people whose "Quiet Disclosures" were discovered by the Internal revenue service.

The "soft" disclosure option is incredibly risky for several reasons. One massive failing is that they do not remedy the problem 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 soft disclosure does not go far enough to eliminate any likelihood of criminal investigations. In fact, the amended return might --- well here's the massive problem with this option --- the soft disclosure 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 very handy 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 doubt that this alternative 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 2 main requirements. First, the taxpayer can't already be under audit or criminal investigation. And second, the foreign assets can't be connected to criminal activity - think currency laundering or drug trafficking. Once these prerequisites are met, any criminal crimes come off the table 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 promise of absolutely no criminal charges. Even though fines and penalties may be substantial, 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 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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