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October 15, 2009 - Phil Hodgen

What happens if you don’t do meet the voluntary disclosure deadline

I’m getting calls. Bam. Bam. Bam. Would love to talk but there are people who paid us money to get things done here. We owe them our best efforts.

If you’re in the position that you think you might need to do a voluntary disclosure of an offshore bank account, today is the deadline. Get a piece of paper filed (by fax or by walking it into an IRS Criminal Investigations office) today.

If you can’t do that, or if you don’t know WHETHER you should do that, we now need to deal with the question of “What if I blow the deadline?”

Filing by October 15, 2009 = put option

Getting your voluntary disclosure application into the IRS by the close of business today buys you a put option. You have the ability (but not the obligation) to close off all of your IRS problems from the foreign bank accounts you have, on the following terms:

  • Pay income tax + 20% of that + interest on the tax and 20% penalty for calendar years 2003 – 2008; and
  • Pay 20% of the high water mark for your undisclosed offshore accounts, measured at any time between 01-Jan-03 and 31-Dec-08.

You are not required to settle the case with the IRS on these terms. But if everything goes pear-shaped (as @dahowlett might say) this is the price of your ticket out of the mess.

The critical selling point for many people is the guarantee that there will be no criminal prosecution for tax evasion.

UPDATE: I got an anonymous phone call based on this post and thank you. I need to clarify this.

This is a “put option” in the sense of the price for your exit from tax problems. A “put option” does not technically put you under an obligation. Starting down the road with the IRS puts you under an oblication.

Once you start the process you are in for the ride, all the way. You either solve your tax problems as a negotiated audit, or you solve your tax problems by paying the price outlined above. But either way you will pay SOMETHING.

The “put option” idea was an imperfect way of explaining this is your maximum financial exposure for solving the problems.

Coming clean after October 15, 2009

If you voluntarily disclose your offshore accounts after October 15, 2009, you can still clean up your messes. It will just be done with more uncertainty as to the penalties. And, more importantly for people with serious problems, there is less assurance on the criminal prosecution relief.

But remember. The IRS was doing voluntary disclosure deals for decades before this amnesty came along. It’s not like we’re plunging into darkness. Things can and will be fixed, if you want to fix them.

My personal opinion is that the IRS will take a more aggressive position on penalties after October 15, 2009, because they must. The IRS has painted its bureaucratic self into a corner.

It’s like a school-yard bully demanding a quarter from a kid at recess. If this is done publicly, the bully must carry through with the threat to beat up his victim after school.

Voluntary Disclosure