Foreign Bank Account Reporting: Disclose, Stay Quiet or Something in Between?

The Disclosure Dilemma

With the 2011 Offshore Voluntary Disclosure Initiative coming to a close on August 31, 2011, many U.S. citizens, green card holders, visa holders and other residents with undisclosed overseas accounts are wrestling with whether to disclose their foreign bank account(s) and other foreign financial activity. This includes those who have filed so-called “quiet disclosures” in the hopes that they will be overlooked by the IRS. Still yet, some people are deciding to gamble on the chance that the IRS will not ever discover their offshore accounts. But the civil and criminal penalties are severe for both non and quiet disclosure and taxpayers should understand these risks before passing on the benefits of the 2011 Offshore Voluntary Disclosure Initiative before it ends on August 31, 2011.

Quiet Disclosure

(Qualified Quiet Disclosure content has been revised)

The IRS treats a quiet disclosure as a crime. A quiet disclosure occurs when a taxpayer files an amended return and pays taxes and interests on a previously unreported offshore account and otherwise does not notify the IRS. In past years, the IRS has not prosecuted taxpayers who file amended returns voluntarily through a quiet disclosure. However, the IRS has made it clear this time around that a quiet disclosure is not a disclosure at all. In fact, the IRS recently announced in a voluntary disclosure question and answer publication the following about quiet disclosures:

“Taxpayers are strongly encouraged to come forward under the Voluntary Disclosure Practice to make timely, accurate and complete disclosures. Those taxpayers making ‘quiet’ disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years.”

Local Disclosure

A local disclosure allows protection to taxpayers who have partial information required by the IRS for participating in the 2011 Offshore Voluntary Disclosure Initiative or otherwise have a case for forgiveness without paying the OVDI penalty of 25% of the highest balances. The tax lawyers at Law Offices of Stephen Moskowitz, LLP have helped many clients make local disclosures by providing what limited information the client has to the local IRS Criminal Investigation Division in an act of good faith. Depending on the situation, local disclosures of this nature may result in discounted penalties and fines. More importantly, local disclosure affords the taxpayer all the constitutional protections normally provided a person in a criminal proceeding.

Do Nothing?

Deciding not to participate in the 2011 Offshore Voluntary Disclosure Initiative is an extremely risky tactic. While you might save some money upfront in IRS taxes and penalties by not disclosing, ask yourself, is it worth the worry of being caught and facing a costly prosecution? Remember, willful failure to pay taxes on a qualifying offshore account could result in imprisonment of up to 10 years and financial penalties which could be far in excess of your investments and assets.

If you have unreported offshore income, stop “whistling past the graveyard” thinking you will not be discovered by the IRS. Let the experienced tax lawyers at the Law Office of Stephen Moskowitz, LLP assess your personal situation and explain to you your options so that you can make an educated decision. Call us today for a free, no obligation, attorney-client privileged consultation.