And the Internal Revenue Service demands to know where all the taxpayers foreign accounts are located --- it is a crime to keep these foreign bank account secret if they are over $10,000.00 in value. For those people in non-compliance, the IRS ran two offshore voluntary disclosure initiatives (OVDI). The last one passed on August 31, 2011. For those people thinking what to do, this article discusses their 4 remaining options.
Option One: Do nothing. You could do nothing and hope that the IRS does not find out the foreign bank account. Perhaps your foreign bank account is at a foreign 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-American passport. Well, it used to be that a foreign bank account's true owner could be kept anonymous. However, now, the Internal Revenue Service has vastly many more tools than it ever did previously to find hidden accounts.
Here's the thing every global banking and financial organization must be in the US marketplace otherwise it would turn into such a minor league player that the foreign bank's corporate board 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! Part of being on the good side of the IRS is to disclose what the Internal Revenue Service says to disclose. So the foreign 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 exceptpay outrageous taxes and the highest penalties and face the significant possibility of real jail time.
Option 2: Renounce citizenship; Leave the country. Do you want to say goodbye to the Internal Revenue Service? There is only one way to do it. That is, to renounce one's citizenship and no longer be a American citizen. The process is complicated. Additionally, a requirement of recognizable expatriation is that you have 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 Internal Revenue Service treats it as a non-event, meaning you are still subject to the jurisdiction of the Internal Revenue Service --- indefinitely . Renouncing your citizenship only gets rid of future tax liabilities, but you have to inform the IRS about the existence of previously unreported accounts first.
Option 3: Soft (or quiet) disclosure. One option is to file amended returns, this time including previously unreported income simply filing the returns as if it were simply forgotten income. Doesn't this seems like a fool-proof game-plan? 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 remedy the issue 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. As a result filing a soft disclosure does not go far enough to eradicate any likelihood of criminal investigations. In fact, the 1040X might --- well here's the terrific dilemma with this alternative --- 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 roadmap to find you.
The forth option is a pre-emptive disclosure and subsequent negotiation of the penalties. This is the best option. Even though the time to disclosure under the 2011 initiative has expired, it is not too late. The only thing that passed on August 31, 2011 was the specific off-the-shelf terms of the 2011 disclosure. The 2011 OVDI was simply a pre-agreed upon penalty structure. The Internal revenue service always welcomes voluntary disclosures.
There are only two requirements. First, the taxpayer can not be under examination. Also, the source of the money 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 qualified foreign tax law firm. The attorney-client privilege only applies in communications to an attorney. The Internal Revenue Service can subpoena a CPA or nearly anyone else to give evidence against a taxpayer.
Option One: Do nothing. You could do nothing and hope that the IRS does not find out the foreign bank account. Perhaps your foreign bank account is at a foreign 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-American passport. Well, it used to be that a foreign bank account's true owner could be kept anonymous. However, now, the Internal Revenue Service has vastly many more tools than it ever did previously to find hidden accounts.
Here's the thing every global banking and financial organization must be in the US marketplace otherwise it would turn into such a minor league player that the foreign bank's corporate board 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! Part of being on the good side of the IRS is to disclose what the Internal Revenue Service says to disclose. So the foreign 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 exceptpay outrageous taxes and the highest penalties and face the significant possibility of real jail time.
Option 2: Renounce citizenship; Leave the country. Do you want to say goodbye to the Internal Revenue Service? There is only one way to do it. That is, to renounce one's citizenship and no longer be a American citizen. The process is complicated. Additionally, a requirement of recognizable expatriation is that you have 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 Internal Revenue Service treats it as a non-event, meaning you are still subject to the jurisdiction of the Internal Revenue Service --- indefinitely . Renouncing your citizenship only gets rid of future tax liabilities, but you have to inform the IRS about the existence of previously unreported accounts first.
Option 3: Soft (or quiet) disclosure. One option is to file amended returns, this time including previously unreported income simply filing the returns as if it were simply forgotten income. Doesn't this seems like a fool-proof game-plan? 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 remedy the issue 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. As a result filing a soft disclosure does not go far enough to eradicate any likelihood of criminal investigations. In fact, the 1040X might --- well here's the terrific dilemma with this alternative --- 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 roadmap to find you.
The forth option is a pre-emptive disclosure and subsequent negotiation of the penalties. This is the best option. Even though the time to disclosure under the 2011 initiative has expired, it is not too late. The only thing that passed on August 31, 2011 was the specific off-the-shelf terms of the 2011 disclosure. The 2011 OVDI was simply a pre-agreed upon penalty structure. The Internal revenue service always welcomes voluntary disclosures.
There are only two requirements. First, the taxpayer can not be under examination. Also, the source of the money 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 qualified foreign tax law firm. The attorney-client privilege only applies in communications to an attorney. The Internal Revenue Service can subpoena a CPA or nearly anyone else to give evidence against a taxpayer.