What You Need To Know About IRS Voluntary Disclosure

The IRS has authority to impose a tax on income from around the globe. The IRS 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. For those taxpayers in non-compliance, the Internal Revenue Service ran two offshore voluntary disclosure initiatives (OVDI). The last one expired on August 31, 2011. For those citizens wondering what to do, this article discusses their four remaining options.

The first option available is to roll the dice and pray for a miracle. The benefit is that it costs nothing to do, and there is certainly a likelihood of greater than zero, no matter how slight, that the taxpayer can get away with the crime. The downside that is if learned, there is an incredible emotional strain for anyone 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.


Here's the thing - every global banking and financial institution must be in the American market otherwise it would turn into such a small time player that the bank's shareholders would revolt and replace management --- immediately. Despite everything you may have heard, the US is still by far the largest economy in the world and every global bank must be on the good side of the IRS - otherwise that bank will be shut out of getting US capital or customers! In order to be on the good side of the Internal revenue service is to disclose 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 becomes a more dangerous and dangerous. And once the Internal Revenue Service starts seeking a criminal indictment, there are no option left except-pay outrageous taxes and the highest penalties and face the significant possibility of real jail time.

The next option is to renounce nationality and depart the country --- as there is no other way to escape the power of the IRS. But be warned --- this only works to dodge upcoming tax debts and compliance troubles. The only way to properly relinquish is to fundamentally come forward about all overseas foreign bank accounts and actually forfeit an expatriation tax (in many ways it was easier to leave Soviet Block country than to leave the USA completely intact with your wealth.)

This third way is to simply file amended returns and not mention to the Internal Revenue Service that you are seeking to come clean. 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 Internal Revenue Service 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 1040X's are "red flags." Even though the tax returns are amended and back taxes paid, the Internal revenue service tells says that account holders will still face penalties and criminal charges. In addition to charging and prosecuting people with undeclared foreign income, the Department of Justice 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 reason is that they do 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. So simply filing a quiet disclosure 't go far enough to eradicate any possibility of criminal charges. In fact, the 1040X might --- well here's the massive problem with this alternative --- it does nothing concerning the failure to the FBAR. 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 best option. Even though the time to disclosure under the 2011 OVDI has expired, there is time to act. The only deal that expired on August 31, 2011 was the specific standards terms of the 2011 disclosure. The 2011 OVDI was simply a pre-agreed upon penalty structure. The IRS always welcomes voluntary disclosures.

There are 2 main requirements. First, the taxpayer cannot already be under examination or criminal investigation. And next, the foreign financial accounts can't be connected to any criminal activity - like money laundering or drug trafficking. Once these prerequisites are met, any criminal crimes are removed from the continuum of possibilities and the taxpayer's is referred to the regular civil assessment division for assessment of taxes, interest and penalties. A voluntary disclosure offers reduced penalties and a promise of no criminal prosecution. Even though fines and penalties may be considerable, that's just a bill, they are meaningless compared to an .

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 in communications to an attorney. The Internal Revenue Service can subpoena nearly anyone else to give evidence against a taxpayer.

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