FBAR Amnesty Quiet Disclosures of Offshore Foreign Accounts
Taxpayers with foreign accounts can take advantage of the current voluntary disclosure program to minimize their tax exposure and to resolve these looming and unresolved problems. This disclosure program brings IRS scrutiny and potential civil penalties, and in some situations criminal penalties. Some taxpayers with interests in foreign assets have tried to sidestep these issues by employing a strategy called a “quiet disclosure.”
The quiet disclosure is implemented by simply amending a previously filed tax return to show the foreign accounts, report the income associated with the account and paying the tax with the amended return. The problem with this strategy is that the IRS has made clear that this strategy is not acceptable. The IRS clearly states in its Questions and Answers of May 6, 2009 that quiet disclosures do not satisfy reporting requirements. On June 1, 2011, IRS announced that it would be opening up examinations against such taxpayers who have employed this strategy. They have made clear from Q&A #10 of 2009 and Q&A #15 of 2011 of their disclosure programs that such taxpayers who have made quiet disclosures would be best served to come forward to take advantage of the penalty framework of the voluntary disclosure programs.
Be aware that the criminal and civil penalties for foreign bank accounting reporting (FBAR) violations are in most cases based on the intent of the taxpayer. If a taxpayer is aware of the FBAR requirements and the disclosure programs but knowingly attempts a quiet disclosure, the IRS may argue and a judge or jury may decide that this strategy is indicative of negligent, reckless, or perhaps willful conduct. Quiet disclosures may be insufficient in other ways. Although amended returns (quiet disclosures) report income, taxes, and related interest, they do not show accuracy related penalties. More importantly the amended return may not show the information required by the FBAR form (Form TD F 90-22.1).
I suggest taxpayers with foreign accounts find a CPA with years of experience with the international division of the Internal Revenue Service. To decide the to do in this messy area. It seems that using the quiet disclosure strategy would only compound the problem.
I know of some CPA’s who are with the international division of the IRS who have been successful in filing for amnesty. Then the CPA has the client opt out and take the appeals route. In my opinion this is the best way to substantially reduce taxes in many situations. In the short run more accounting costs will be spent. In most cases, however the resulting huge reduction in proposed IRS taxes is well worth the small additional costs.
I have received thousands of phone calls on these issues and I strongly suggest using a CPA with years of experience of the international division of the IRS. If the former IRS employee also had experienced in the appeals division that would be a plus. Most people that call me under estimate the taxes that the IRS is going to impose on them. They also do not understand that they also may be subjected to criminal prosecution.
Very Important Warning for accountants: For those accountants subject to SSTS No.1, Tax Return Positions the following sobering warning should be kept in mind: Tax advisors should “not take a questionable position based on the probabilities that the client’s return will not be chosen by the IRS for audit.” Additionally, the various criminal and civil penalties under the Internal Revenue Code for tax practitioners should be taken very seriously in this context. In light of these exposures, practitioners should take pause before recommending a quiet disclosure.
The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.
While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
By Lance Wallach, CLU, CHFC
Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness
ABOUT THE AUTHOR: Lance WallachAbusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness
Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, abusive tax shelters, financial, international tax, and estate planning. He writes about 412(i), 419, Section79, FBAR and captive insurance plans. He speaks at more than ten conventions annually, writes for more than 50 publications. He does expert witness testimony and has never lost a case.
Copyright Lance Wallach, CLU, CHFC
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.
