Financial Resource

Article by Darren Patterson

The Internal Revenue Service has authority to tax 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 IRS about foreign accounts if their value exceeds $ 10,000.00 by filing an FBAR form every June. The Internal Revenue Service offered two previous offshore voluntary disclosure initiatives. One in 2009 and the last one in 2011. The last one expired on August 31, 2011. For those people wondering what to do, this piece discusses their four remaining options.

The first option is to do nothing except hope and pray. 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 disadvantages are that if caught, the penalties are severe. In both monetary cost and in emotional drain of being charged with a federal crime. 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 American customers. And in order to do so, these banks must comply with what the IRS tell them to. Part of being on the good side of the Internal revenue service is to cough up what the IRS says to disclose. Consequently 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 IRS 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.

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. Furthermore, a requirement of proper 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 secret financial accounts first.

This third way is to simply file amended returns and not explicitedly tell 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 disadvantages are that you may give the IRS a roadmap to charge you criminally, and if you are caught, you are experience a pain of 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 massive failing is that they do not address the problem of the taxpayer’s non-compliance in FBAR filing; failing to filing an FBAR can be a criminal charge just by itself. So filing a quiet disclosure ‘t go far enough to remove any likelihood of criminal charges. In fact, the amended return might — well here’s the massive problem with this alternative — the soft disclosure does nothing concerning the failure to FBAR forms. There are still criminal and civil investigations that may be pending for failing to file an FBAR, but simply give the Internal revenue service a roadmap to locate you.

The forth option is a pre-emptive disclosure and subsequent negotiation of the penalties. If enjoying the rest of your life 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 Internal Revenue Service always welcomes offshore disclosures. The only deadline that was missed was the particular conditions of the 2011 OVDI which capped certain penalties.

There are only two requirements. Initially, 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.

Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified Offshore tax attorneys, experienced in overseas compliance and delicate IRS negotiations.

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