Offshore Voluntary Disclosure Initiative What To Do

The IRS has authority to tax income from around the globe. The Internal Revenue Service 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 Internal Revenue Service 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 expired on August 31, 2011. For those citizens thinking what to do, this article discusses their 4 remaining options.

The first option available is to roll the dice and pray for a miracle. The advantage is that it costs zero to do, and there is certainly a likelihood of greater than zero, no matter how minor, that the taxpayer can get away with the crime. The downside that is if discovered, there is an unbelievable emotional strain for anybody who become a criminal defendant. Even if acquitted, the entire process will be the most arduous time of someone's life. Even if found not guilty, a criminal trial is still incredibly costly.


This is an fundamental disadvantage. The chances are that the IRS does not discover unreported accounts gets smaller and smaller. Why? Because in order to compete for US customer and capital, foreign banks are coerced into complying with the IRS. That's right --- foreign banks take their marking orders from the Internal Revenue Service as well. So if the IRS wants information on American holders of foreign accounts, the IRS will get that information. The Internal Revenue Service will also run names of other individuals it suspects of being American citizens but who opened their accounts with foreign passports. The Internal Revenue Service 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. 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. Also, a requirement of recognizable 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 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. Expatriation may make sense to avoid future tax liabilities , but you have to disclose the existence of secret financial accounts first.

This third way is to simply file amended returns and not explicitedly tell the Internal Revenue Service 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 see high penalties and a nasty and real possibility of criminal charges.

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 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 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 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 simply filing a quiet disclosure does not go far enough to eradicate any likelihood of criminal charges. In fact, the amended return might --- well here's the problem with this alternative --- it does nothing about the failure to the FBAR. There are still criminal and civil charges 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") If enjoying the rest of your life is chief importance, there can be no question 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 Internal Revenue Service always welcomes offshore disclosures. The only thing that expired was the particular provisions of the 2011 OVDI which capped certain penalties.

There are only 2 requirements. First, 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. Think drug trafficking or money laundering.

If someone is still questioning what the appropriate course of action is, it is critical that they only speak to a qualified offshore tax law firm. The attorney-client privilege only applies when speaking to an attorney. The Internal Revenue Service can subpoena a CPA or nearly anyone else to give evidence against a taxpayer.

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