Over these past couple of years, the IRS has made an attempt to expand upon the process by which holders of foreign-held bank accounts are required to bring forth unpaid taxes and penalties in order to avoid criminal charges and further punitive penalties. This compliance attempt is summed up in OVDI or the Offshore Voluntary Disclosure Initiative.
What is Quiet Disclosure?
As the IRS attempts to streamline measures and begins to employ sophisticated data tracking and collecting tools, quiet disclosures seem to be going to the wayside. While a formal definition does not exist, a quiet disclosure is an attempt by a taxpayer to file or amend previous years’ tax returns and FBARs without alerting the IRS to any intricacies and circumstances.
In this way, the assessments of penalties would not adhere to statutory laws and instead are left to the IRS agent’s discretion and in some cases may not be imposed at all; however, they may also bring severe FBAR penalties and even criminal charges. Therefore even though the decision is entirely yours on whether or not to enter the OVDI, the uncertainty and risk associated with quiet disclosures are seen as the less attractive option.
Finally, it is important to establish that a quiet disclosure, in any form, is not an IRS approved measure to get things right with regards to your undisclosed foreign accounts or international taxes. For those who choose not to disclose through the OVDI, they put themselves at risk for criminal prosecution.
Opt-Out or Not?
On the other hand, participation in the OVDI program guarantees that you will not be subjected to criminal prosecution and provides to all participants a statutory penalty structure. Therefore, IRS agents who work in this area must adhere to the penalties as laid out in the regulations of the program and have neither the authority nor the ability to use their personal discretions when reviewing cases for applications of specific fines.
Once the OVDI process is complete, a closing agreement will be sent to you for signing. At this point, you may choose to sign the document and accept the penalties imposed or you may choose to opt-out. Specifically, you are not opting-out of the entire OVDI program; rather you are opting-out of the penalty structure, while still not exposing yourself to the risk of criminal charges. Next, you can request a waiver or reduction of the penalties because of particular circumstances that warrant consideration and may include reasonable cause.
Because the IRS laws are particularly complicated in the areas of offshore bank accounts, consulting with a tax attorney specializing in IRS laws is a prudent decision. Whether you are already in the OVDI process or still considering it, our seasoned professionals at Dallo Law Group can provide you with details and knowledge to figure out your options.
We specialize in tax compliance and can help you weigh and minimize your risks and allow you to better understand the implications to the choices that are available to you.