What's New With IRS Voluntary Disclosure

So many people got caught off guard with the recent attention the Internal Revenue Service is giving holders of offshore bank accounts. So what to do? The last offshore voluntary disclosure initiative (OVDI) ended on August 31, 2011. With that in mind, here are the four options currently available to those wondering what to do.

Option One: Stick your head in the sand and hope that the Internal Revenue Service never catches you. Perhaps your foreign foreign bank 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 IRS has vastly many more tools than it did previously to find previously unreported accounts.


This is an important caveat. 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 IRS. That's right --- foreign banks take their marking orders from the IRS as well. So if the Internal Revenue Service wants information on US 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 US citizens but who opened their accounts with foreign passports. The Internal Revenue Service has more power and intelligence that it ever had before. The Internal Revenue Service 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 IRS? There is only one way to do it. That is, to renounce one's citizenship and no longer be a US citizen. The process is complicated. Additionally, 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 IRS treats it as a non-event, meaning you are still subject to the jurisdiction of the Internal Revenue Service --- indefinitely . Expatriation may make sense to avoid future tax liabilities , but you have to report the existence of unreported accounts first.

Option 3: Soft (or quiet) disclosure. An option that some citizens attempted is to file amended tax forms 1040X's and mail them to the Internal revenue service just like "regular" 1040X's, pay the taxes, and hope the IRS won't figure out what was going on. Sounds like a good strategy, right? Perhaps one could avoid all those excessive penalties of the OVDI programs?

The Department of Justice states that it has begun prosecutions on people who have attempted soft disclosures. So this option has some serious problems

There are other problems with "Quiet Disclosures." One massive failing is that a soft disclosure does not address the matter 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. As a result filing a soft disclosure does not go far enough to eradicate any likelihood of criminal investigations. In fact, the amended return might --- well here's the massive problem 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.

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 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 deadline that was missed was the particular terms of the 2011 OVDI which capped certain penalties.

There are two main requirements. First, the taxpayer cannot already be under examination or criminal investigation. And second, the foreign assets can't be connected to criminal activity - think currency laundering or drug trafficking. Once these qualifications are satisfied, criminal crimes are removed from the continuum of possibilities and the taxpayer's is referred to the civil division for assessment of taxes, interest and penalties. A voluntary disclosure offers reduced penalties and a guarantee of absolutely no criminal charges. Although fines and penalties may be substantial, they are meaningless compared to an .

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

Get other from a real pro that has found out the law about somekeyword-. Don't tolerate guidance with reference to somekeyword- from an individual who hasn't studied tax law.