Quiet Disclosure vs. Streamlined - Board Certified Tax Specialist (Golding & Golding)

Quiet Disclosure vs. Streamlined – Board Certified Tax Specialist (Golding & Golding)

Quiet Disclosure vs. Streamlined – Board Certified Tax Specialist

Quiet Disclosure vs. Streamlined is the difference between making an illegal offshore voluntary disclosure to the IRS (Quiet) vs. following proper IRS Offshore Amnesty Procedures (Streamlined, OVDP or Reasonable Cause).

Quiet Disclosure vs. Streamlined

IRS Offshore Disclosure can be broken down in to 5 different options:

  • OVDP
  • Streamlined Domestic Offshore Procedures
  • Streamlined Foreign Offshore Procedures
  • Reasonable Cause/Delinquency Procedures 
  • Quiet Disclosure (Illegal)

We understand that the idea of proactively coming forward to the IRS to disclose your foreign accounts is scary and downright unfair. We’ve seen the fear-mongering articles written by inexperienced counsel who have suddenly started touting themselves as “self-proclaimed experts and specialists” scaring unsuspecting individuals into believing they will automatically be sentenced to 5 years in jail for non-compliance.

Alternatively, these attorneys will tacitly represent that a “Quiet Disclosure may be the proper option.” We realize that it is enough to turn a sane person mad – and Golding & Golding is here to help!

Sean M. Golding, JD, LL.M., EA (Board Certified Tax Law Specialist)

Our Managing Partner, Sean M. Golding, JD, LLM, EA  earned an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)

Mr. Golding and his team have successfully handled several hundred IRS Offshore/Voluntary Disclosure Procedure cases. Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

Less than 1% of Tax Attorneys Nationwide are Board Certified Tax Law Specialists 

The Board Certified Tax Law Specialist exam is offered in many states, and is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. Certification also requires the completion of significant ethics and experience requirements.

In California alone, out of more than 200,000 practicing attorneys (with thousands of attorneys practicing in some area of tax law), less than 350 attorneys are Board Certified Tax Law Specialists.

Beware of Copycat Law Firms

Unlike other attorneys who call themselves specialists or experts in Voluntary Disclosure but are not “Board Certified,” handle 5-10 different areas of tax law, purchase multiple keyword specific domain names, and even practice outside of tax, we are absolutely dedicated to Offshore Voluntary Disclosure.

*Click here to learn the benefits of retaining a Board Certified Tax Law Specialist with advanced tax credentials.

Offshore Disclosure – Fear of the Unknown

It is not uncommon for individuals and businesses who have recently learned of international tax compliance reporting requirements such as FATCA (Foreign Account Tax Compliance Act), FBARs (Report of Foreign Bank and Financial Accounts), 8938s (Statement of Specified Foreign Financial Assets), 3520 Forms (Foreign Gifts and Trusts) etc. to get nervous about what “offshore disclosure” entails.

All you have to do is run a quick search on Google to learn (read: scare yourself) about the various fines and penalties associated with failing to file these forms.

Watch out For Fear Mongering or Reverse Fear Mongering

With the recent enforcement of FATCA (it was written into law back in 2010 but did not begin enforcement until 2014) foreign countries are actively reporting U.S Account Holders to the IRS.

As such, the Internal Revenue Service and Department of Treasury have made international tax law a main priority. As a result many unscrupulous and inexperienced attorneys are using underhanded marketing ploys, fear tactics and trumped up credentials to scare you and make a quick buck.

They may push you into OVDP when you were clearly non-willful and would otherwise qualify for the Streamlined Program (aka “Fear Mongering”) or, they may go the opposite direction and tell you that you can go Streamlined or Reasonable Cause “no problem,” even when you were willful, since the audit risk or amount of unreported income is low (aka “Reverse Fear Mongering”).

They charge you a small fee for representation, but never tell you that you are subjecting yourself to a possible 100% penalties (in a multi-year audit), as well as a possible criminal tax investigation by the IRS Special Agents for intentional misrepresentation, Tax Fraud and Tax Evasion.

The reality is that if you are out of compliance, it is important that get you into IRS tax law compliance – but it is important that you retain experienced counsel to do so.

What is a Quiet Disclosure?

 A Quiet Disclosure is illegal. An IRS Quiet Disclosure is also known as:
  • Silent Disclosure
  • Soft Disclosure
  • Illegal Offshore Disclosure
  • Criminal Tax Disclosure

Anatomy of a Typical Quiet Disclosure 

  • 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

The Problem: Now You Are Willful

Even if you did not have a prior knowledge of the reporting requirement at the time you hadn’t disclosed, by submitting a Quiet Disclosure, when you know you were required to submit under either OVDP, Streamlined or Reasonable Cause you have now made yourself willful — since you have willfully failed to pay the penalty, you may have bootstrapped your non-willful submission into full-blown tax fraud and tax evasion.

Why? Because you have now willfully evaded reporting foreign accounts and/or paying outstanding U.S. Tax, Interest and Penalties by knowingly filing an untimely FBAR or Amended Tax Return without following proper procedures.

Streamlined Disclosure is a Safe Disclosure Option

Here are the basic differences between Quiet Disclosure and the Streamlined Program:

Quiet Disclosure

Making a Quiet Disclosure to the IRS in an attempt to “sneak amend” your tax returns and submit previously unreported FBAR (aka FinCEN 114) and/or FATCA Form 8938s, 3520s, 5471s, or 8621 Forms is a big mistake.

Quiet Disclosures are illegal and may result in you being subject to extremely high fines and penalties, as well as a criminal investigation.

**Click the following link to Read an in-depth Case Study Golding & Golding Prepared on Quiet Disclosure (“From Quiet Disclosure to IRS Audit…to Jail”)

Streamlined Program

The Streamlined Program is a legal means for voluntarily getting into IRS compliance with a reduced 5% penalty, or even penalty waiver if you qualify for the Streamlined Foreign Offshore Procedures.

                  

Streamlined Domestic Offshore Procedures

In order to qualify for Streamlined Domestic Offshore Procedures, you must meet two major requirements:

  • Qualify as Non-Willful; and
  • Filed all necessary prior year tax returns, timely.

Streamlined Foreign Offshore Procedures

In order to qualify for Streamlined Foreign Offshore Procedures, you must meet three major requirements:

  • Qualify as Non-Willful
  • Meet the 330-Day Foreign Residence Test/Non U.S. Person; and
  • You do not have to have filed all prior year tax returns.

**With Streamlined Foreign, there is an automatic penalty waiver.

Streamlined Domestic Penalty Calculation

While nobody wants to pay a 5% penalty, if you are caught in a Quiet Disclosure, you could be subject to a 100% penalty.

1st: Compile the 12/31 balances on your Foreign Accounts, Insurance Policies and other 8938/FBAR qualified accounts for each year within the compliance period;

2nd: Determine the proper exchange rate for each year (For example: You cannot use the current exchange rate in 2017, for your 2013 accounts — sorry for those of you with accounts in Euros, Pounds or Rupees).

3rd: Total the 12/31 balances on your previously unreported Foreign Accounts, Insurance Policies and other 8938/FBAR qualified accounts (Value of Real Estate is not included for the Streamlined Program).

4th: Pick the Year that has the highest 12/31 balance (not highest max year balance, which is the standard for OVDP).

5th: Multiply the above-value by 5%

Example: Michael’s highest year 12/31 aggregate balance in the six (6) year compliance period is 2013. In 2013 his 12/31 balances totaled $2,600,000. His penalty would be $130,000.

**If you do not qualify for Streamlined Foreign, but still want to try to avoid the IRS Penalties, you may also consider Reasonable Cause, although Reasonable Cause is not proper for everybody — and should be decided on a case by case basis.

Streamlined Program – Common Examples

If you were completely non-willful in your failure to disclosure and were unaware that there was any reporting requirement, then the thought of paying any penalty may sound absurd. Here are three examples in which paying any penalty for your undisclosed foreign accounts may seem unfair.

Example 1: 80-year-old Michael travels worldwide and has 3 accounts in different countries. He only uses the foreign money when he is in the foreign country at issue, he never transfers the money to the US, and there is usually a relatively small amounts of money in each account. The only issue for Michael was that at one point, Michael thought about purchasing a home overseas and left the money in the foreign account for a significant period of time (including 12/31). Foreign taxes were fully paid on the money deposited into the account and foreign taxes were paid on the income the account generated. His only mistake was that he did not report the account and/or the foreign income on his U.S. Tax Return.

Example 2: Michelle, a widow who had never been in trouble with the law, moved to the United States over 30 years ago but has a $1 million USD foreign pension from a private employer through the early 1970s. She has never accessed the account nor has she contributed (or anyone else contributed) since arriving in the United States. The account/earnings are not taxed in the US until distributed, there have been no distributions, and Michelle never reported the account on an FBAR or 8938.

Example 3: David has a foreign account, which he received as an inheritance. He never touched the money, and even though the account earns minimal annual income, there is no tax for passive income in this particular country. He has no other ties to the country and has not used any of the money. David’s son has special needs and he needs to access a large chunk of the money in a short period of time. He has not reported the account on an FBAR or 8938.

In any of the above-referenced scenarios, a penalty may seem unwarranted. If you fall into one of these categories and want to avoid the penalty, you may consider submitting a Reasonable Cause Exception Statement, which is not the same as Quiet Disclosure.

What Forms Must be Reported?

The following is a list of common forms which many people were never aware they had to report, but which the failure to report may lead to extensive fines and penalties:

Reporting Foreign Accounts (FBAR)

The threshold question is whether you have an annual aggregate total of foreign/offshore bank accounts, financial accounts, retirement accounts, etc. that when combined, exceed $10,000. If so, you are required to file the FBAR Form and report all of the accounts.

It does not matter if the money is all in one account, or in 15 different accounts. It also does not matter if the majority of the money is in one account, with minimal amounts of money in the remaining accounts – rather, once you meet the threshold requirements, you have to report all the accounts.

Penalty: 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.

Golding & Golding Resources: FBAR FAQFBAR Penalties

FATCA Form (8938)

FATCA is the Foreign Account Tax Compliance Act. For individuals, it requires reporting of financial accounts and certain specified foreign assets (ownership in businesses, life insurance, etc.). There are different threshold requirements, depending on whether a person is Married Filing Jointly (MFJ) or Married Filing Separate (MFS)/Single, and whether a person resides in the United States or outside of the United States.

Penalty: 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.

Golding & Golding ResourcesForm 8938 FAQForm 8938 Penalties

Foreign Gift Form (3520)

If you receive a gift or inheritance from a foreign person that exceeds $100,000 either in a single transaction, or a series of transactions over a year, you are required to report the gift on this form. You have the file this form, even if you are not required to file a tax return (although it is normally filed at the same time as your tax return).

Golding & Golding ResourcesForm 3520 Penalties

Foreign Corporation or Foreign Partnership (5471 or 8865)

The rules are somewhat different for these two forms, but essentially the same (with the 5471 being much more commonplace for U.S. investors). If you own at least 10% ownership in either type of business, you required to report the information on either a form 5471 or 8865. Both of these forms require comprehensive disclosure requirements, involving balance statements, liabilities, assets, etc. Moreover, the forms need to be filed annually, even if a person does not have to otherwise file a tax return

Golding & Golding ResourcesForm 5471 Penalties

Passive Foreign Investment Company (PFIC)

One of the most vilified type of financial assets/investments (from the U.S. Government’s perspective) is the infamous PFIC. A PFIC is a Passive Foreign Investment Company. The reason the United States penalized this type of investment is because it cannot oversee the growth of the investment and income it generates. In other words, if a U.S. person invests overseas in a Foreign Mutual Fund or Foreign Holding Company — the assets grows and generates income outside of IRS and U.S. Government income rules and regulations.

Golding & Golding ResourcesForm 8621 PenaltiesPFIC Form 8621 Excess Distribution Calculation

Foreign Trust (3520-A)

A Foreign Trust is another type of Foreign Investment that is frowned upon by the IRS. From the IRS’ perspective, the only purpose behind a Foreign Trust is to illegally avoid US reporting and income tax requirements by moving money offshore. While there are many people who may operate illegally in this fashion, there are various legitimate reasons why you would be a trustee or beneficiary of a Foreign Trust (Your cool grandma really loves you and placed $5 million in trust for you overseas). Form 3520-A is a relatively complex form, which must be filed annually by anybody that owns a foreign trust.

Golding & Golding ResourcesForm 3520-A Foreign Trust Penalties 

Foreign Real Estate Income

Even if you are earning rental income from property that is located outside of the United States, you still must report the income on your U.S. taxes (even it is exempt from tax in the foreign country). Remember, United States taxes individuals on their worldwide income. Therefore, the income you are earning from your rental property(s) must also be included on your US tax return.

A few nice benefits of reporting the income is that the United States allows depreciation of the structure – which many foreign countries do not allow. Moreover, you can take the same types of deductions and expenses that you otherwise take the property was located in the United States.

Golding & Golding ResourcesForeign Real Estate Income FAQ

We Specialize in Safely Disclosing Foreign Money

We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)

Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Examples of areas of tax we handle

Who Decides to Disclose Unreported Money?

What Types of Clients Do we Represent?

We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.

You are not alone, and you are not the only one to find himself or herself in this situation.

IRS Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

Failure to File

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure to Pay

f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Civil Tax Fraud

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

A Penalty for failing to file FBARs

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.

A Penalty for failing to file Form 8938

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.

A Penalty for failing to file Form 3520

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.

A Penalty for failing to file Form 3520-A

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.

A Penalty for failing to file Form 5471

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.

A Penalty for failing to file Form 5472

The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, 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.

A Penalty for failing to file Form 926

The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Penalties include $10,000 for failure to file each 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, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

What Should You Do?

Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.

Be Careful of the IRS

With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.

4 Types of IRS Voluntary Disclosure Programs

There are typically four types of IRS Voluntary Disclosure programs, and they include:

Contact Us Today; Let us Help You.