Quiet Disclosure vs Streamlined: The Quiet Disclosure vs Streamlined analysis and IRS FBAR Penalty Rules are very complex. The IRS Penalty Risks are very real. We compare making an IRS Quiet Disclosure to making a safe and legal Streamlined disclosure. Please keep in mind, a Quiet Disclosure is not an alternative to Streamlined Offshore Procedures — and it is never a good option. The IRS has made offshore enforcement of foreign accounts compliance a key priority. The penalties associated with getting caught can be devastating.
Quiet Disclosure vs Streamlined (IRS FBAR Penalty Rules)
The Quiet Disclosure vs Streamlined analysis is the comparison of a legal offshore compliance method, and an illegal one. An IRS Quiet Disclosure FBAR can get taxpayers into deep trouble. The Internal Revenue Service has stated it will aggressively pursue U.S. persons they believe committed an FBAR violation of other offshore violations. By filing a quiet disclosure, the filer Taxpayer tax returns and international information returns ‘unannounced’ – outside of the approved amnesty programs such as FBAR Amnesty or FATCA Amnesty – collectively referred to as offshore voluntary disclosure. This may lead to Tax evasion and other consequences.
What is a Quiet Disclosure & What are the Risks?
There are many risks to IRS Quiet Disclosure of tax returns and FBAR — and the resulting penalties for Silent Disclosure can be devastating. Most importantly, is that since a Quiet Disclosure is when a person intentionally seeks to avoid compliance, if the IRS discovers a willful violation – the outcome can be very bad, including criminal investigations.
That is why Quiet Disclosure is never a good option.
*If a person accidentally or unintentionally submitted a quiet disclosure, it is a relatively easy fix if handled correctly.
A quiet disclosure is when a Taxpayer is out of compliance with the IRS and (usually) has offshore accounts, assets, investments, and/or income. The reason it involves offshore matters, is because the penalties for non-compliance in offshore tax and reporting can be staggering. Therefore, in order to avoid the fines and penalties (which can usually be abated or minimized anyway), the taxpayer files a quiet disclosure.
There are two main types of Voluntary Disclosure:
By filing forward, the Taxpayer begins to file tax returns and/or information returns in the current year. The filer does not go back and file for previous years. This is very dangerous, especially considering the hidden traps with forms, such as FATCA Form 8938.
Past and Current Filings
With this option, the Taxpayer goes back and files original and/or amended returns for prior years, but without using one of the approved amnesty programs. The filer hopes to get the prior year returns on file with the Internal Revenue Service, while avoiding the (perceived) penalties associated with non-compliance.
How Can the IRS Find My Offshore Accounts?
The IRS has several ways to track down taxpayers. Some of the more common ways include:
- FATCA reporting from Foreign Financial Institutions (110 + countries)
- J5 Reporting from cooperating countries
- Whistleblower rewards
- Your Tax Preparer or CPA being Audited
What are the Risks?
The main risks of a quiet disclosure is that the IRS will pursue heavy fines and penalties against the taxpayer. Including a special agent investigation, international criminal tax investigation, and willful FBAR Penalties.
FBAR Penalty (Willfulness)
The penalties associated with an IRS FBAR Quiet Disclosure are very bad, and deserves extra attention. Even presuming that the government does not pursue a criminal investigation, the civil willfulness penalties alone are devastating.
Willful Penalties (IRM 126.96.36.199.5.3)
The IRM is the Internal Revenue Manual, and followed by IRS Personnel when determining penalties.
Penalty for Willful FBAR Violations – Calculation
1. For violations occurring after October 22, 2004, a penalty for a willful FBAR violation may be imposed up to the greater of $100,000 or 50% of the amount in the account at the time of the violation, 31 USC 5321(a)(5)(C). For cases involving willful violations over multiple years, examiners may recommend a penalty for each year for which the FBAR violation was willful.
2. After May 12, 2015, in most cases, the total penalty amount for all years under examination will be limited to 50 percent of the highest aggregate balance of all unreported foreign financial accounts during the years under examination. In such cases, the penalty for each year will be determined by allocating the total penalty amount to all years for which the FBAR violations were willful based upon the ratio of the highest aggregate balance for each year to the total of the highest aggregate balances for all years combined, subject to the maximum penalty limitation in 31 USC 5321(a)(5)(C) for each year.
3. Examiners may recommend a penalty that is higher or lower than 50 percent of the highest aggregate account balance of all unreported foreign financial accounts based on the facts and circumstances. In no event will the total penalty amount exceed 100 percent of the highest aggregate balance of all unreported foreign financial accounts during the years under examination. The examiner’s workpapers must support all willful penalty determinations and document the group manager’s approval.
4. If an account is co-owned by more than one person, a penalty determination must be made separately for each co-owner. The penalty against each co-owner will be based on his her percentage of ownership of the highest balance in the account. If the examiner cannot determine each owner’s percentage of ownership, the highest balance will be divided equally among each of the co-owners.
There are several options for taxpayer to safely and legally get into compliance. The primary options for taxpayers who were non-willful is the Streamlined Program. The Streamlined Program is a highly-effective method for getting into offshore compliance. The penalties are significantly reduced, and if the taxpayer qualifies as a Foreign Resident, the filer may avoid ALL Penalties.
Therefore, before ever considering a quiet disclosure, it is important to understand the risks, and other available options for getting into compliance.
How to Get Into Compliance
The first step after understanding the circumstances a taxpayer is in, is to contact a specialist to assist you with understanding your options, and developing a strategy for compliance.
We Specialize in Streamlined Filing Compliance Procedures
We specialize exclusively in international tax, and specifically IRS offshore disclosure.
We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
- Learn more about the Board-Certified Tax Lawyer Specialist credential
- Learn more about the Enrolled Agent credential
- Learn more about Case Accomplishments
- Learn more about Testimonials from prior clients
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants and Financial Professionals worldwide.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Our lead attorney is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
Interested in Learning More about our Firm?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
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