Quiet Disclosure or IRS Offshore Amnesty (2018) – Know Your Options
If (against your better judgment or as a result of bad advice from your attorney) you are considering submitting (or already submitted) a Quiet Disclosure to the IRS, you should reconsider. Why? Because a Quiet Disclosure is illegal, and may land you on the receiving end of an IRS or DOJ Criminal Investigation.
A Quiet Disclosure to the IRS or FinCEN (FBAR) is never recommended. A Quiet Disclosure or “Silent Disclosure” is an attempt to mislead the U.S. Government by amending your returns or submitting original returns, without identifying the foreign income by way of an approved IRS Offshore Voluntary Disclosure Program, such as OVDP or the Streamlined Program.
Common Quiet Disclosure Questions
Common Questions we receive regarding making a Quiet Disclosure re:
- Will the IRS audit me?
- Can I go to jail?
- But I only have limited unreported income?
- My CPA or Attorney said I won’t get caught?
A quiet disclosure can take a relatively benign situation which can be resolved with IRS Offshore Voluntary Disclosure (aka OVDP, Streamlined or Reasonable Cause) and turn the Taxpayer into a Willful Participant in Tax Fraud or Tax Evasion – resulting in excessive IRS Fines & Penalties.
At Golding & Golding, we have helped many people fix or resolve their Quiet Disclosure before it is too late (before the IRS finds you)
What is an IRS Quiet Disclosure?
Quiet Disclosures (aka Silent Disclosure or Soft Disclosures) are illegal That is because in a Quiet Disclosure scenario, you knowingly amend your tax returns without going through the proper procedures with the IRS in order to avoid the penalty (or to avoid the risks of Reasonable Cause).
Essentially, you have “sneak amended” your returns in the hopes that he would not get caught. With that said, not all Quiet Disclosures intentional and whether you were intentional or not may make the difference between whether you were willful or not — which impact the potential penalties you may face.
Quiet Disclosure – Typical Example
- You have unreported foreign accounts, assets or income
- You learn about IRS Offshore Reporting Requirements
- You learn about FBAR & FATCA Penalties
- You get caught up reading fear mongering websites
- You take the FBAR & FATCA penalties “out-of-context”
- You get scared about going OVDP or Streamlined
- You file prior year Income Tax Returns and FBARs
- But You did not submit under OVDP, Streamlined or Reasonable Cause
- Now you are scared of Willfulness, Criminal Penalties & a Potential Jail Sentence
Example 1 – Unintentional Quiet Disclosure
Joe recently learned about FBAR and FATCA and realized that he had not filed any of these forms in the past. Joe is about the file his most recent return and realizes that he’s also required to include an FBAR and Form 8938. Joe includes these forms with his current tax return in order to get it filed timely (because Joe’s unaware that he qualifies for an automatic extension using IRS Form 8938).
Thereafter, after nights of research, Joe realizes that he should have been filing these forms for many years prior and that by simply filing the current year forms, he may be at much higher risk for Fines, Penalties, or worse than if he performs a proper disclosure. Therefore, Joe contacts an experienced Offshore Voluntary Disclosure Attorney and they come to the conclusion that Joe is non-willful.
*In this particular situation, Joe may still qualify for the streamlined program because the facts show that he was non-willful.
Example 2 – Intentional Quiet Disclosure
Jane recently had a change in her U.S. Tax Status and moved from an H-1B Visa holder to a Legal Permanent Resident. All the while, Jane was under the misunderstanding that as an H-1B she was not required to file and report her foreign income or account information.
After speaking with a qualified Offshore Voluntary Disclosure Lawyer, Jane comes to the sobering realization that she was required to file these forms the entire time. Jane is nervous, because after years of waiting — she finally received her green card. Jane does not want to lose her green card (which she probably wouldn’t anyway if she filed under proper disclosure procedures) and realizes that the chances are low that the IRS would ever detect her if she was to file her prior FBARs and FATCA firm 8938 “quietly”.
Therefore, Jane goes back and files six years of FBARs and three years of amended tax returns to include her FATCA Form 8938 – and Form 3520 for multiple gift she received from her parents in order to purchase a home.
**In the second example, Jane performed a quiet disclosure. She knowingly and intentionally filed prior forms in order to avoid the penalties associated with either filing streamlined program or reasonable cause. She could be subject to an IRS Criminal Investigation.
Getting Into Compliance with IRS Offshore Disclosure
Even though Jane and Joe are out of compliance, they can get back in the compliance through approved means under the IRS offshore voluntary disclosure programs. In the above referenced situations, Joe would probably qualify for the Streamlined Program and Jane would have to go the traditional OVDP route.
Either way, in the end Joe and Jane will be in compliance if they pursue proper channels for offshore disclosure.
Want to Learn More About Offshore Disclosure?
Offshore Voluntary Disclosure Tax law is very complex. There are many aspects that go into any particular tax calculation, including the legal status, marital status, business status and residence status of the taxpayer.
When Do I Need to Use Voluntary Disclosure?
Voluntary Disclosure is for individuals, estates, and businesses who are out of compliance with the IRS and the Department of Treasury. What does that mean? It means that if you are required to file a U.S. tax return and you don’t do so timely, then you are out of compliance.
If the IRS discovers that you are out of compliance, you may become subject to extensive fines and penalties – ranging from a warning letter all the way up to tax liens, tax levies, seizures, and criminal investigations. To combat this, you can take the proactive approach and submit to Voluntary Disclosure.
Golding & Golding – Offshore Disclosure
At Golding & Golding, we limit our entire practice to offshore disclosure (IRS Voluntary Disclosure of Foreign and U.S. Assets). The term offshore disclosure is a bit of a misnomer, because the term “offshore” generally connotes visions of hiding money in secret places such as the Cayman Islands, Bahamas, Malta, or any other well-known tax haven jurisdiction – but that is not the case.
In fact, any money that is outside of the United States is considered to be offshore; the term offshore is not a bad word. In other words, merely because a person has money offshore (a.k.a. overseas or in a foreign country) does not mean that money is the result of ill-gotten gains or that the money is being “hidden.” It just means it is not in the United States. Many of our clients have assets and bank accounts in their homeland countries and these are considered offshore assets and offshore bank accounts.
A Brief Summary of Your Offshore Disclosure Options
OVDP is the Offshore Voluntary Disclosure Program — a program designed to facilitate taxpayer compliance with IRS, DOT, and DOJ International Tax Reporting and Compliance. It is generally reserved for individuals and businesses who were “Willful” (aka intentional) in their failure to comply with U.S. Government Laws and Regulations.
The Offshore Voluntary Disclosure Program is open to any US taxpayer who has offshore and foreign accounts and has not reported the financial information to the Internal Revenue Service (restrictions apply). There are some basic program requirements, with the main one being that the person/business who is applying under this amnesty program is not currently under IRS examination.
The reason is simple: OVDP is a voluntary program and if you are only entering because you are already under IRS examination, then technically, you are not voluntarily entering the program – rather, you are doing so under duress.
Any account that would have to be included on either the FBAR or 8938 form as well as additional income generating assets such as rental properties are accounts that qualify under OVDP. It should be noted that the requirements are different for the modified streamlined program, in which the taxpayer penalties are limited to only assets that are actually listed on either an FBAR or 8938 form; thus the value of a rental property would not be calculated into the penalty amount in a streamlined application, but it would be applicable in an OVDP submission.
An OVDP submission involves the failure of a taxpayer(s) to report foreign and overseas accounts such as: Foreign Bank Accounts, Foreign Financial Accounts, Foreign Retirement Accounts, Foreign Trading Accounts, Foreign Insurance, and Foreign Income, including 8938s, FBAR, Schedule B, 5741, 3520, and more.
2. Streamlined Domestic Offshore Disclosure
The Streamlined Domestic Offshore Disclosure Program is a highly cost-effective method of quickly getting you into IRS (Internal Revenue Service) or DOT (Department of Treasury) compliance.
What am I supposed to Report?
There are three main reporting aspects: (1) foreign account(s), (2) certain specified assets, and (3) foreign money. While the IRS or DOJ will most likely not be kicking in your door and arresting you on the spot for failing to report, there are significantly high penalties associated with failing to comply.
In fact, the US government has the right to penalize you upwards of $10,000 per unreported account, per year for a six-year period if you are non-willful. If you are determined to be willful, the penalties can reach 100% value of the foreign accounts, including many other fines and penalties… not the least being a criminal investigation.
Reporting Specified Foreign Assets – FATCA Form 8938
Not all foreign assets must be reported. With that said, a majority of assets do have to be reported on a form 8938. For example, if you have ownership of a foreign business interest or investment such as a limited liability share of a foreign corporation, it may not need to be reported on the FBAR but may need to be disclosed on an 8938.
The reason why you may get caught in the middle of whether it must be filed or not is due largely to the reporting thresholds of the 8938. For example, while the threshold requirements for the FBAR is when the foreign accounts exceed $10,000 in annual aggregate total – and is not impacted by marital status and country of residence – the same is not true of the 8938.
The threshold requirements for filing the 8938 will depend on whether you are married filing jointly or married filing separate/single, or whether you are considered a US resident or foreign resident.
Reporting Foreign Income
If you are considered a US tax resident (which normally means you are a US citizen, Legal Permanent Resident/Green-Card Holder or Foreign National subject to US tax under the substantial presence test), then you will be taxed on your worldwide Income.
It does not matter if you earned the money in a foreign country or if it is the type of income that is not taxed in the country of origin such as interest income in Asian countries. The fact of the matter is you are required to report this information on your US tax return and pay any differential in tax that might be due.
3. Streamlined Foreign Offshore Disclosure
What do you do if you reside outside of the United States and recently learned that you’re out of US tax compliance, have no idea what FATCA or FBAR means, and are under the misimpression that you are going to be arrested and hauled off to jail due to irresponsible blogging by inexperienced attorneys and accountants?
If you live overseas and qualify as a foreign resident (reside outside of the United States for at least 330 days in any one of the last three tax years or do not meet the Substantial Presence Test), you may be in for a pleasant surprise.
Even though you may be completely out of US tax and reporting compliance, you may qualify for a penalty waiver and ALL of your disclosure penalties would be waived. Thus, all you will have to do besides reporting and disclosing the information is pay any outstanding tax liability and interest, if any is due. (Your foreign tax credit may offset any US taxes and you may end up with zero penalty and zero tax liability.)
*Under the Streamlined Foreign, you also have to amend or file 3 years of tax returns (and 8938s if applicable) as well as 6 years of FBAR statements just as in the Streamlined Domestic program.
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