What To Do About Voluntary Disclosure Program

The IRS has authority to impose a tax on 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 IRS about foreign accounts if their value exceeds $10,000.00 by filing an FBAR form every June. For those taxpayers in non-compliance, the IRS ran two offshore voluntary disclosure initiatives (OVDI). The last one expired on August 31, 2011. For those taxpayers wondering what to do, this article talks about their four remaining options.

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 possibility, no matter how minor, that the taxpayer can get away with the crime. The downside that is if caught, there is an extraordinary 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 secret accounts gets more and more remote. 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 US holders of foreign accounts, the IRS 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 incredible investigative powers --- powers it never had before.

The next option is to renounce citizenship and depart the country --- as there is no other way to escape the power of the IRS. But be warned --- this only will avoid future tax debts and compliance troubles. The only way to properly abandon is to essentially come clean about all offshore bank financial accounts and actually pay an expatriation excise (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. An option that some people tried 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?

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.

There are other problems with "Quiet Disclosures." 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. So simply filing a soft disclosure does not go far enough to remove any likelihood of criminal investigations. In fact, the 1040X might --- well here's the problem with this option --- the quiet disclosure does nothing concerning 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.

Option 4: Pre-emptive Disclosure and Negotiation (" Offshore Voluntary Disclosure Initiative") 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 IRS always welcomes offshore disclosures. The only thing that expired was the particular stipulations of the 2011 OVDI which capped certain penalties.

There are only 2 requirements. Initially, the taxpayer can not be under audit. In addition, 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 proper course of action is, it is critical that they only talk to a experienced offshore tax attorney. The attorney-client privilege only applies when speaking to an lawyer. The IRS can subpoena a CPA or nearly anyone else to give evidence against a taxpayer.

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