What You Want To Know About Offshore IRS

The IRS has power 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 passed on August 31, 2011. For those people wondering what to do, this article talks about their 4 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 small, that the taxpayer can get away with the crime. The downside that is if caught, 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 - despite what you hear, the American is still by far the largest ecomony in the world and has the richest population by far. Every foreign foreign bank must compete for American customers. And in order to do so, these banks must comply with what the IRS tell them to. In order to be on the good side of the Internal revenue service is to cough up what the IRS says to cough up. Accordingly the foreign bank is really at the mercy of the IRS-.meaning so are the banks' account holders. So you see, hiding behind the shadows becomes riskier and riskier. And once the IRS starts seeking a criminal indictment, there is only one option left-pay outrageous taxes and the highest penalties and face the significant possibility of real jail time.

The second option is to renounce nationality and leave the country --- as this is the only way to escape the taxing jurisdiction of the IRS. But be warned --- expatriation only works to dodge future tax debts and submission problems. The lone technique to properly give up is to fundamentally come clean about all overseas foreign bank 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. .)

The third option is to quietly filed amended 1040X's and not mention to 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 disadvantages are that you may give the Internal Revenue Service a very handy clue to charge you criminally, and if you are 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 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 taxpayers whose "Quiet Disclosures" were discovered by the Internal revenue service.

There are other problems with "Quiet Disclosures." One massive failing is that they do not remedy the matter of the taxpayer's failure to report the bank account on the FBAR; as a willful failure to file an FBAR is a criminal charge. So filing a soft disclosure 't go far enough to eradicate any likelihood of criminal charges. In fact, the 1040X might --- well here's the problem with this option --- it does nothing about 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 Internal revenue service a roadmap to find you.

The forth option is a pre-emptive disclosure and subsequent negotiation of the penalties. This is the optimal solution. Even though the time to disclosure under the 2011 initiative has passed, it is not too late. The only deal that expired on August 31, 2011 was the particular standards terms of the 2011 OVDI. 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 can't already be under audit or criminal investigation. And next, the foreign assets can't be connected to criminal activity - think money laundering or drug trafficking. Once these qualifications are satisfied, criminal crimes come off the table and the case is referred to the civil division for assessment of taxes, interest and penalties. A voluntary disclosure offers reduced penalties and a guarantee of no criminal prosecution. Even though fines and penalties may be substantial, they are meaningless compared to an .

If someone is still wondering what the suitable course of action is, it is critical that they only talk to a qualified offshore tax lawyer. The attorney-client privilege only applies when speaking to an lawyer. The Internal Revenue Service can subpoena nearly anyone else to give evidence against a taxpayer.

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