Voluntary Disclosure – What are your options?

If you are an American taxpayer with an offshore foreign bank accounts that you have not reported, you are supposed to" get into compliance" – that is, file missing FBARs and include any missing income on amended tax returns. But what if you don't? This article explains the three other options.


Option One: Hope that the IRS never catches you. Perhaps your foreign bank account is at a bank that you think 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 foreign bank account’s true owner could be kept fairly secret. However, now, the Internal Revenue Service has vastly many more weapon at its disposal than it ever did previously to find unreported accounts…say hello to their little friend FATCA.


The Foreign Account Tax Compliance Act is a law that passed in 2010. It requires all non-US banks to exercise due diligence by taking affirmative steps to see which of their account holders may be US persons. The letter and request for IRS Form W-8 are both parts of the FATCA process.


Option 2: Renounce citizenship; Leave the country. There is only way to escape the jurisdiction of the Internal Revenue Service taxing authority. That is, to renounce one’s citizenship and  no longer be a US citizen. 


A requirement of proper 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 the expatriation is handled improperly, the IRS 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 undisclosed financial accounts first.


Option 3: Soft (or quiet) disclosure. An option that some taxpayers try to do is to file amended tax forms 1040X's and mail them to the IRS just think "regular" 1040X's, pay the taxes, and hope the IRS won't figure out what was going on. 


The Internal revenue service says that these amended returns are “red flags.” Even though the tax returns are amended and back taxes paid, the Internal revenue service says that account holders will still face penalties and criminal charges. In addition to charging and prosecuting people with undeclared foreign income, the Department of Justice claims that it has also begun prosecution of taxpayers whose “Quiet Disclosures” were discovered by the Internal revenue service.


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. So simply filing a quiet disclosure does not go far enough to eliminate any likelihood of criminal investigations. In fact, the 1040X might — well here's the problem with this alternative — it does nothing about the failure to the FBAR. 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 very handy to find you.


As you can see, taxpayers in non-compliance are between a rock and a hard place. It is either come clean using a Disclosure Program or attempt a Presidential pardon.


If you're unsure of what action is best for your particular situation, contact us. We can help. Call us at 888-727-8796 or email info@irsmedic.com. Any information you share with us will be kept confidential.