Quiet Disclosure & the IRS
Quiet Disclosure IRS: When a U.S. person has unreported offshore income or accounts, and learns about the reporting (and especially if they missed the reporting in prior years) they may be understandably scared about coming forward. They are concerned that if they file using offshore tax amnesty, they will be heavily penalized. As a result, they may consider a quiet disclosure. A Quiet Disclosure involves filing of late and international informational returns to the IRS. Taxpayers who file a quiet disclosure are risking significantly high IRS fines and penalties.
There are two main types of quiet disclosure submissions to the IRS:
- Filing forward in the current year, without resolving past non-compliance; or
- Filing original or amended tax returns, and international information returns without amnesty (Common offshore filing requirements involve FBAR and FATCA).
Research and Rabbit Holes
Does this sound like you?
You sit at your computer researching Quiet Disclosure — contemplating whether you can get away with the illegal disclosure of foreign bank accounts, assets, investments and income.
Is a Quiet Disclosure worth it?
You read stories online about people who have successfully submitted it, and others who crashed and burned. You consider voluntary disclosure, but don’t want to pay the penalties.
Your spouse has had enough and has gone to bed — but that doesn’t deter you, not one bit. You want to get compliant, but don’t want to pay IRS penalties for unreported assets, accounts, investments and related income.
So you continue your research into the early morning hours, not sure what to do.
10 Quiet or Silent Disclosure Risks
Here are 10 reasons to avoid a quiet disclosure:
Quiet Disclosure are Illegal
If you knowingly submit documents in prior years that should have been reported timely, or you just begin filing forward – that is a crime.
That is not to say you’re going to be prosecuted, but the civil penalties alone can reach 100% value of the unreported accounts.
The Penalties are Major
If you get caught in a quiet disclosure, you will get hit with willful penalties. Those penalties can reach 100% maximum value of the unreported accounts. In addition, you can get hit with tax fraud, tax evasion and many other penalties.
You’ll Lose (Lots) of Sleep
The problem with the IRS, is that they move slow; molasses, slow.
For example, if you were a little rambunctious kid and got caught stealing a cookie from the cookie jar, you’ll pretty much know soon enough whether you got caught — or got away with it.
The IRS takes a lot longer, and if it turns out to be a civil tax fraud case, they can have unlimited time to enforce, while your Grandma gives you a stern warning (and a hug).
You’ll be Looking Over Your Shoulder (A Lot)
Because, when the IRS agents first introduce themselves to you, it will not be pleasant, and generally it will come as a surprise.
We have worked with many clients who have been surprised by the IRS, and these IRS “introductions” come in all shapes and sizes.
In each situation, the client told us they literally had no idea they were under any investigation.
Your Foreign Assets are at Risk
The United States has entered into bilateral tax treaties with more than 50 countries and FATCA agreements with more than 110 countries. In other words, the IRS is working with many foreign countries to facilitate the reduction of offshore tax crime – so your foreign assets are not safe.
Your U.S. Assets are at Risk Too
When it comes time to pay the Internal Revenue Service, the IRS is able to enforce and collect against your U.S. Assets even if the penalties stem from foreign assets and accounts.
This may include the IRS pursuing a:
- IRS Passport Revocation
It Can Impact Your Immigration Status
Generally, if you were non-willful and you want to get into compliance, your immigration status should be safe.
But, if you get caught in a quiet disclosure, which can be criminal, then you could be subject to much harsher fines and penalties, which may impact your ability to renew or change your immigration status.
You Can’t go Back to Streamlined or Reasonable Cause
If you knowingly made a quiet disclosure, and get cold-fee later, you would have to make a voluntary disclosure under the traditional voluntary disclosure program instead of using one of the more lenient streamlined or reasonable cause options.
What if Your CPA or Accountant Gets Caught?
This is not uncommon.
Maybe your CPA or accountant finds himself or herself in trouble and wants to use your file (and other files) as leverage to try to reduce penalties against their practice.
Alternatively, your CPAs files might be audited by the IRS Office of Professional Responsibility (OPR), and this could put your Quiet Disclosure history and background at risk.
You May Not Even Need It
Here’s an example: Felicia is from Spain. She has foreign accounts that are worth $1 million. She never reported them because she never knew she had to report them.
Although she lived in the United States for many years, in 2017 she traveled back to Spain to be with her mother, and spent 350-days in Spain.
Felicia may qualify for the Streamlined Foreign Offshore Procedures (see below), in which she can legally fix her prior mistakes — and all penalties or waived.
IRS Enforcement of Offshore Penalties
Here is a list of common Offshore Penalties that may be amplified with a quiet disclosure:
The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation (Whether it is per account or per FBAR is up to the Agent assigned to your case).
Form 8938 Penalties
Beginning with the 2011 tax year, a penalty for failing to file Form 8938 reporting the taxpayer’s interest in certain foreign financial assets, including financial accounts, certain foreign securities, etc.
The penalties is $10,000, per return with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
Form 3520 Penalties
Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.
The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
Form 3520-A Penalties
Information Return of Foreign Trust With a U.S. Owner.
The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.
Form 5471 Penalties
Information Return of U.S. Persons with Respect to Certain Foreign Corporations.
The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
Statute of Limitations
A quiet disclosure is all bad, because you are setting yourself up for major reporting issues going forward.
The problem with making a quiet disclosure, is that you have committed a form of tax fraud.
This may lead to an “unlimited statute of limitations,” which means the IRS is not limited in the time they have to audit.
Even if the IRS cannot prove’ fraud,’ in most international income reporting scenarios, the IRS will have at 6-years to audit you.
The Internal Revenue Service developed several voluntary offshore compliance procedures to get into compliance. Quiet Disclosures, Silent Disclosures & Qualified Quiet Disclosures are illegal — even if you are non-willful.
We will discuss why a Quiet Disclosure is not worth the risk, and how to safely and cost-effectively get into compliance.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.