And the Internal Revenue Service demands to know where all the taxpayers foreign accounts are located --- it is a crime to keep these foreign bank account secret if they are over $10,000.00 in value. The Internal Revenue Service offered two previous offshore voluntary disclosure initiatives. One in 2009 and the last one in 2011. The last one expired on August 31, 2011. For those citizens wondering what to do, this piece discusses their four remaining options.

Option One: Do nothing. You could do nothing and hope that the IRS does not notice the foreign bank account. Perhaps your foreign bank account is at a foreign bank that you think to be "off the radar" or is in a quiet jurisdiction, or under a friend's name, or opened with a non-US passport. Well, it used to be that a bank account's actual owner could be kept anonymous. However, now, the IRS has vastly many more weapon at its disposal than it ever did previously to find previously unreported accounts.

Here's the thing despite what you hear, the American is still by far the largest ecomony in the world and has the richest population by far. Every foreign foreign bank must compete for American customers. And in order to do so, these banks must comply with what the Internal Revenue Service tell them to. Part of being on the good side of the Internal revenue service is to disclose what the IRS says to cough up. Accordingly the bank is really at the mercy of the Internal Revenue Service.meaning so are the banks' foreign account holders. So you see, hiding behind the shadows becomes riskier and riskier. And once the Internal Revenue Service starts seeking a criminal indictment, there are no option left exceptpay outrageous taxes and the highest penalties and face the significant possibility of real jail time.

The next option is to renounce nationality and leave the country --- as there is no other way to escape the power of the IRS. But be warned --- expatriation only works to avoid future tax debts and compliance problems. The only technique to properly abandon is to effectively come clean about all offshore foreign bank accounts and actually forfeit an expatriation tax (many commenters have noted that it was easier to leave cold war USSR with your wealth intact than the modern day USA. .)

The third option is to quietly filed amended 1040X's and not explicitedly tell the Internal Revenue Service that you are seeking to voluntarily disclose. This is known as a "quiet" or "soft" disclosure. This is basically a "cheap" alternative and that's is only advantage . But the horrible possibilities are that you may give the Internal Revenue Service a very handy clue to charge you criminally, and if caught, you are experience a pain of high penalties and a nasty and real possibility of criminal charges.

The Department of Justice states that it has begun prosecutions on people who have attempted soft disclosures. So this option has some serious problems

The "soft" disclosure option is incredibly risky for several reasons. One massive failing is that a soft disclosure does not remedy the matter of the taxpayer's failure to report the bank account on the FBAR; failing to filing an FBAR can be a criminal charge just by itself. As a result simply filing a quiet disclosure does not go far enough to eliminate any possibility of criminal charges. In fact, the 1040X may --- well here's the problem with this alternative --- it does nothing about the failure to the FBAR. There are still criminal and civil charges that may be pending for failing to file an FBAR, but simply give the Internal revenue service a roadmap to locate you.

Option 4: Pre-emptive Disclosure and Negotiation (" Offshore Voluntary Disclosure Initiative") This is the best option. Even though the time to disclosure under the 2011 OVDI has expired, there is time to act. The only thing that passed on August 31, 2011 was the specific off-the-shelf terms of the 2011 OVDI. The 2011 OVDI was simply a pre-agreed upon penalty structure. The IRS always welcomes voluntary disclosures.

There are only two requirements. First, the taxpayer can not be under examination. Also, the source of the funds in the foreign bank accounts can not be from an illegal source. Like drug trafficking or money laundering.

If someone is still questioning what the appropriate course of action is, it is imperative that they only speak to a experienced foreign tax lawyer. The attorney-client privilege only applies in communications to an lawyer. The IRS can subpoena a CPA or nearly anyone else to give evidence against a taxpayer.