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 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 IRS ran two offshore voluntary disclosure initiatives (OVDI). The last one expired on August 31, 2011. For those citizens thinking what to do, this piece 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 discovered, there is an incredible 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 Internal Revenue Service does not discover previously unreported 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 Internal Revenue Service as well. So if the IRS wants information on American 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 American citizens but who opened their accounts with foreign passports. The IRS has incredible investigative powers --- powers it never had before.
Option 2: Renounce citizenship; Leave the country. There is only way to escape the jurisdiction of the IRS taxing authority. That is, to renounce one's citizenship and no longer be a American citizen. The process is complicated. Also, 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 . Expatriation may make sense to avoid future tax liabilities , but you have to report the existence of undisclosed accounts first.
This third way is to simply file amended returns and not mention to the IRS that you are seeking to voluntarily disclose. This is known as a "quiet" or "soft" disclosure. This is basically a "cheap" alternative and that's is only advantage . But the horrible possibilities are that you may give the IRS 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 Department of Justice states that it has begun prosecutions on people who have attempted soft disclosures. So this option has some serious problems
The "soft" disclosure option is incredibly risky for several reasons. One reason is that a soft disclosure does not address the matter of the taxpayer's non-compliance in FBAR filing; failing to filing an FBAR can be a criminal charge just by itself. As a result filing a soft disclosure 't go far enough to remove any likelihood of criminal investigations. In fact, the 1040X may --- well here's the massive problem with this alternative --- the quiet disclosure does nothing about the failure to the FBAR. 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 locate 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 thing that passed on August 31, 2011 was the particular off-the-shelf terms of the 2011 disclosure. The 2011 OVDI was simply a pre-agreed upon penalty arrangement. The Internal revenue service always welcomes voluntary disclosures.
There are only 2 requirements. First, the taxpayer can not be under examination. In addition, the source of the funds in the foreign bank accounts can not be from an illegal source. Think drug trafficking or money laundering.
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified Offshore tax lawyers, skilled in overseas compliance and delicate IRS negotiations.
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 discovered, there is an incredible 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 Internal Revenue Service does not discover previously unreported 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 Internal Revenue Service as well. So if the IRS wants information on American 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 American citizens but who opened their accounts with foreign passports. The IRS has incredible investigative powers --- powers it never had before.
Option 2: Renounce citizenship; Leave the country. There is only way to escape the jurisdiction of the IRS taxing authority. That is, to renounce one's citizenship and no longer be a American citizen. The process is complicated. Also, 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 . Expatriation may make sense to avoid future tax liabilities , but you have to report the existence of undisclosed accounts first.
This third way is to simply file amended returns and not mention to the IRS that you are seeking to voluntarily disclose. This is known as a "quiet" or "soft" disclosure. This is basically a "cheap" alternative and that's is only advantage . But the horrible possibilities are that you may give the IRS 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 Department of Justice states that it has begun prosecutions on people who have attempted soft disclosures. So this option has some serious problems
The "soft" disclosure option is incredibly risky for several reasons. One reason is that a soft disclosure does not address the matter of the taxpayer's non-compliance in FBAR filing; failing to filing an FBAR can be a criminal charge just by itself. As a result filing a soft disclosure 't go far enough to remove any likelihood of criminal investigations. In fact, the 1040X may --- well here's the massive problem with this alternative --- the quiet disclosure does nothing about the failure to the FBAR. 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 locate 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 thing that passed on August 31, 2011 was the particular off-the-shelf terms of the 2011 disclosure. The 2011 OVDI was simply a pre-agreed upon penalty arrangement. The Internal revenue service always welcomes voluntary disclosures.
There are only 2 requirements. First, the taxpayer can not be under examination. In addition, the source of the funds in the foreign bank accounts can not be from an illegal source. Think drug trafficking or money laundering.
Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified Offshore tax lawyers, skilled in overseas compliance and delicate IRS negotiations.