Financial Resource

Article by Richard Grigg

And the IRS demands to know where all the people 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 taxpayers in non-compliance, the IRS ran two offshore voluntary disclosure initiatives (OVDI). The last one passed on August 31, 2011. For those people wondering what to do, this piece discusses their four remaining options.

The first option available is to roll the dice and pray for a miracle. The advantage 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 discovered, there is an unbelievable 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 bank must compete for US customers. And in order to do so, these banks must comply with what the Internal Revenue Service tell them to. In order to be 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 Internal Revenue Service….meaning so are the banks’ foreign account holders. So you see, hiding behind the shadows becomes riskier and riskier. And once the Internal Revenue Service starts an investigation, there are no option left except…pay 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 IRS? There is only one way to do it. That is, to renounce one’s citizenship and no longer be a US citizen. The process is not as easy as you may think. Also, a requirement of recognizable expatriation is that a citizen has to be in compliance with all tax laws and pay an expatriation tax in order to make it official. If you fail to expatriate properly, you would still be subject to the jurisdiction of the US, meaning nothing was accomplished and you are still subject to all the requirements of the tax code. Expatriation may make sense to avoid future tax liabilities , but you have to inform the IRS about the existence of secret accounts first.

The third option 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 Internal Revenue Service a roadmap to charge you criminally, and if caught, you are see high penalties and a 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

There are other problems with “Quiet Disclosures.” One reason is that they do not address the problem of the taxpayer’s non-compliance in FBAR filing; as a willful failure to file an FBAR is a criminal charge. So filing a quiet disclosure ‘t go far enough to remove any likelihood of criminal charges. In fact, the 1040X might — well here’s the problem with this option — it does nothing concerning 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 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 importance, there can be no doubt 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 terms of the 2011 OVDI which capped certain penalties.

There are only two requirements. First, the taxpayer can not be under audit. Also, 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 wondering what the proper course of action is, it is imperative that they only speak to a experienced offshore tax attorney. The attorney-client privilege only applies in communications to an lawyer. The Internal Revenue Service can subpoena a CPA or nearly anyone else to give evidence against a taxpayer.

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Tags: internal revenue service, IRS, irs demands, richard grigg, Service, Tax