“Quiet Disclosure” of Foreign Accounts- Not So Quiet As It Seems

There are strong indications that going forward, the IRS will be cracking down more stringently on the practice of “quiet disclosures”.  Under a quiet disclosure, a taxpayer through normal IRS filing channels files new or amends past tax returns and FBAR’s to report previously unreported offshore accounts and foreign income in an attempt to avoid potential civil penalties and fines.

The danger in doing this, however, is that if the IRS discovers a quiet disclosure, the taxpayer will be exposed to higher civil penalties than he would have if he voluntarily came forward under the Offshore Voluntary Disclosure Initiative (OVDI).  The taxpayer might even be exposed to criminal prosecution.

The IRS has clearly indicated its disdain for those who make quiet disclosures instead of participating in OVDI and to discourage taxpayers from pursuing this route, the IRS has implemented procedures at the Service Centers to intercept those filings reporting foreign income for further review and investigation by the IRS.  Where a taxpayer has been discovered by IRS in this process, that taxpayer who made the quiet disclosure will not be eligible for the 27.5% offshore penalty.  Instead a larger penalty of 50% would apply.  Also, if appropriate, the IRS may recommend criminal prosecution to the Department of Justice.  The IRS does encourage those who have already quietly disclosed to come forward under the OVDI to avail themselves of the lower penalty rates and avoid potential harsher consequences.

If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Initiative (OVDI) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS.  Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

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