Choosing the Best Offshore Account Disclosure Strategy

If you’ve spent the last five years wondering what to do with that secret offshore bank account you’ve been hiding from the IRS all these years, then there are many things to consider. You’ve probably already examined your situation in some detail and realize just how precarious your situation actually is. At this point, you may have also realized that the IRS dragnet for these foreign accounts is eventually going to catch up to you. Still, even if you’ve already come to the realization that you are going to have to disclose your holdings eventually, you may not be sure of which option would best serve your interests.

When it comes to coming into compliance with the requirement to file a Report of Foreign Bank and Financial Accounts (FBAR), you have several options available to you. Which one you choose can determine just how severe your penalties may be for failing to disclose earlier, and could also decide whether or not you face any criminal charges. Here are your options:

  • You can opt to attempt a quiet disclosure and hopefully slip between the cracks in the IRS enforcement system. This option requires only that you file the missing FBAR, and amend your prior tax returns to reflect the taxes you actually owed. You also need to include any payment due, of course.

The risk is that your quiet disclosure will be discovered, since the IRS is now actively searching for such attempts to evade normal disclosure expectations. Obviously, the agency wants to retain the option to penalize you for your failure to disclose, and the quiet disclosure method seeks to deny them that opportunity.

  • You can pursue the agency’s Streamlined Program, but you may have to prove that you’re a non-willful tax evader. In other words, you must demonstrate that your failure to disclose was not due to some real attempt to avoid taxes. This option can limit the penalties that you may face. Its major drawback, however, is that it provides no protection from prosecution if the IRS determines that you did in fact willfully evade disclosure in the past.
  • The third option is the Offshore Voluntary Disclosure program. This option has the most severe penalties, but also provides amnesty from prosecution and the assurance that the process will bring you into full compliance with all relevant laws. It requires full and transparent disclosure with the IRS, the filing of FBARs for the prior eight years, and amended tax returns. You also have to pay all taxes due, as well as penalties as determined by the agency.

The best option is, of course, to consult a competent tax attorney and develop a clear strategy for resolving your disclosure problems. The IRS is looking for you, and there’s every reason to believe that they will eventually discover your account. A good attorney can assist you in reviewing your options and determining a path forward that will best suit your unique circumstances and legal needs.

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