Missed The 2011 OVDI? Here Are Your Four Options

If you are an American taxpayer with any offshore accounts, you must now bring it into compliance. That means filing any missing FBARs and amending any tax returns that are missing income.


With the deals previously offered, the terms of the settlement were known and predictable. Now that the 2009 and 2011 offshore voluntary disclosure initiatives (OVDI) have ended, the IRS has not yet issued a new OVDI, so many non-compliant taxpayers are wondering if  they should come forward and what the cost of coming forward will be. With that in mind, here are the four options currently available to those wondering what to do.


*Updated 2017 Offshore Disclosure Programs information here*


Option One: Do nothing

You could do nothing and hope that the IRS does not discover the account. Perhaps your account is at a 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-US passport.


It used to be that a bank account's true owner could be kept fairly secret. However, now, the IRS has vastly many more tools than it did previously to find hidden accounts, including,

  • Tax Information Exchange (TIE) Agreements
  • Mutual Legal Assistance Treaties (MLATs)
  • Qualified Intermediary (QI) Agreements with foreign banks,
  • John Doe Summonses,
  • plus the trove of information that the IRS already has in its possession via the two
    voluntary disclosure programs which resulted in details about banks in 140 countries.


Here's the thing —  every global banking and financial institution must be in the US market or it would become such a small time player that the bank's  shareholders would revolt. 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 IRS says to disclose. So the bank is really at the mercy of the IRS….meaning so are its account holders.


And now, because of FATCA, the bank is subject to a 30% withholding penalty on any business dealings with the United States if it is found that they did not disclose information about any "suspected" US persons holding accounts.


Hiding is becoming riskier and riskier. Once the IRS starts an investigation, there is only one option left…pay outrageous taxes and the highest penalties and face the possibility of 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 US citizen. The process is not as easy as you may think. Additionally, 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 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 disclose the existence of unreported accounts first.


Update 2017: More people than ever are expatriating because of laws like FATCA.


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. Sounds like a good strategy, right? Perhaps one could avoid all those excessive penalties of the OVDI programs?


I am told by the IRS that these amended returns are "red flags." Even though tax returns are amended and back taxes paid, the IRS tells me that account holders could still face penalties and criminal charges.


There are other problems with "Quiet Disclosures." One is that they do not address the issue of the taxpayer's failure to report the FBAR; a willful failure to file an FBAR is a criminal charge. So filing a soft disclosure doesn't go far enough to remove any possibility of criminal charges. In fact, the amended return may give the IRS a road map to assessing FBAR liabilities — both civil and criminal.


Option 4: Pre-emptive Disclosure and Negotiation ("Voluntary Disclosure")

This is the best option. If one missed the deadline and still wishes to come clean, it is still possible. Even though the 2009 and 2011 OVDI's have both ended, the IRS always maintains a voluntary disclosure policy. That policy allows for taxpayers to come forward and disclose their hidden foreign assets.


There are two main requirements:

  • the taxpayer cannot already be under audit or investigation.
  • the foreign assets cannot be connected to criminal activity — like money laundering or dug trafficking.


Once these qualifications are met, criminal charges 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 promise of no criminal prosecution. Although fines and penalties may be significant, they are insignificant compared to an IRS criminal prosecution which will certainly cost more than a voluntary disclosure.


If you need assistance deciding if you should get into a program, or which program is best for you, contact us. We can help. Call 888-727-8796 or email info@irsmedic.com.