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OVDI CPA comments on Quiet Disclosures | Expat tax CPA issues

OVDI CPA quiet disclosure

Four years into the OVDI program, the IRS begins to pursue taxpayers who circumvented OVDI through Quiet Disclosures. (910) 399-2705.

OVDI CPAs field questions about Quiet Disclosures almost daily. Hi, I’m Gary Bode, an Expat CPA with a virtual office to help with Form 5471, FBAR, Form 2555 and OVDI (Offshore Voluntary Disclosure Initiative) applications. What’s a Quiet Disclosure? It’s where a tax payer quietly amends back tax returns to include previously undisclosed foreign income, instead of going through the OVDI program, in hopes of avoiding the IRS penalty.

OVDI Quiet Disclosure is a typical IRS carrot and stick story

  • OVDI offers taxpayers with foreign bank accounts and/or foreign income to come clean to the IRS. They pay a modest penalty, in exchange for amnesty from criminal charges, and, a promise of future compliance. The program still exists but the penalty is higher. A nice carrot.
  • The IRS threatened the FATCA program would eventually force other country’s banks to disclose American account holders. A nebulous stick both in substance and timeline.
  • Simultaneously the IRS began to play hard ball by enforcing penalties they used to automatically abate.
  • Instead going through OVDI, many frightened taxpayers elected to amend prior returns to include undeclared foreign income. This became known as a soft or Quiet Disclosure.
  • Internet chatter built a myriad of unfounded tales speculating on if, when and how the IRS would pursue Quiet Disclosures.
  • Now, years later, the IRS is prosecuting folks who used Quiet Disclosures. This delayed timeline is typical.

IRS Capabilities

I’ve never heard an Expat CPA say the IRS couldn’t catch Quiet Disclosures. The question was always whether the IRS would pursue them and under what circumstance. As a sidebar, 2013 budget cuts to the IRS may mean fewer audits. Balance that with the IRS’s vastly improved automated Correspondence Audits.

A “new” 2013 GAO study on 2009 OVDI

The GAO (Government Accountability Office) states in a 2013 report that 39,000 OVDI cases in 2009 netted the IRS $5.5% Billion in back taxes and penalties. Now the GAO recommends the IRS pursue Quiet Disclosures.

“What the IRS should do, what the IRS wants to do, what the IRS can do and what the IRS will do are four different issues. And rightly so.” 
– Gary Bode, OVDI CPA and expat tax accountant

Will the IRS pursue Quiet Disclosures?

  • It seems to me the IRS should pursue Soft Disclosures since 39,000 taxpayers followed the rules and forked over $5.5 Billion.
  • My guess is that the IRS wants to pursue quiet disclosures. I believe the IRS wants to be fair to all taxpayers.
  • I doubt whether the IRS can pursue all known soft disclosures because of its limited resources.
  • I believe the IRS will pursue soft disclosures where they expect to recoup more back tax and penalties than the audit costs.

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