Offshore Voluntary Disclosure Program The FourIssues You Need To Know

Offshore Voluntary Disclosure Program The FourIssues You Need To Know

If you are an American taxpayer with an offshore foreign bank 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 taxpayers are wondering if they should come forward and what the cost of coming forward will be. These are the four options still available.

Option One: Stick your head in the sand and pray 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 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 did previously to find undisclosed accounts.


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

Option 2: Renounce citizenship; Leave the country. Do you want to say goodbye to the Internal Revenue Service? There is only one way to do it. That is, to renounce one's citizenship and no longer be a American citizen. The process is not as easy as you may think. Furthermore, a requirement of proper expatriation is that a citizen has to be in compliance with all tax laws and pay an expatriation tax in order to make it official. If the expatriation is handled improperly, the Internal Revenue Service treats it as a non-event, meaning you are still subject to the jurisdiction of the IRS --- indefinitely . Expatriation may make sense to avoid future tax liabilities , but you have to inform the IRS about the existence of previously unreported accounts first.

This third way is to simply file amended returns and not explicitedly tell the IRS that you are seeking to voluntarily disclose. This is known as a "quiet" or "soft" disclosure. The advantage is that there is little upfront cost to this. But the horrible possibilities are that you may give the IRS a roadmap to charge you criminally, and if caught, you are experience a pain of high penalties and a nasty and real possibility of criminal charges.

There may be serious problems with this alternative. One major drawback is that the Department of Justice states that it has begun criminal proceeding against people who attempted to utilize the "soft" disclosure process.

The "soft" disclosure option is incredibly risky for several reasons. One reason is that a soft disclosure does not address the issue of the taxpayer's non-compliance in FBAR filing; as a willful failure to file an FBAR is a criminal charge. As a result filing a soft disclosure 't go far enough to remove any possibility 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 optimal solution. Even though the time to file under the 2011 initiative has expired, 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 arrangement. The IRS always welcomes voluntary disclosures.

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

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

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