Many people with offshore issues are considering their options for coming into compliance with U.S. tax rules, given the threat of exposure due to Fatca and the potentially stiff penalties.
But choosing the right way to go about it isn’t easy, and advice is often expensive.
Mr. Hodgen, the Pasadena lawyer, has helped hundreds of U.S. taxpayers with offshore issues. He cautions people with problems not to give into “fear-mongering” by advisers.
“Unless there’s a red flag in your tax history that presents a risk of prison, you probably don’t need to enter the IRS’s main confession program,” he says. That program—the OVDP, which stands forOffshore Voluntary Disclosure Program—is a limited amnesty that has higher penalties than the Streamlined Disclosure option available to many expats.
Red flags include moving undeclared funds from account to account, perhaps in Switzerland or Israel, where banks are under U.S. scrutiny; hiding assets in trusts or foundations typically used to obscure ownership; and being a tax professional, such as a lawyer or an accountant, who should have known the rules. The larger the account, Mr. Hodgen adds, the more alluring it is as an IRS target.
Several experts told The Wall Street Journal they often advise noncompliant taxpayers with offshore accounts totaling less than $1 million that they don’t necessarily need to confess past missteps, assuming they don’t have red flags indicating willful evasion. If such taxpayers don’t mind assuming a bit of risk for a few years, those experts say, they can simply comply going forward—because the IRS has limited resources and more important cases to pursue.
People who are uncomfortable with such a strategy should consider filing past returns or entering one of the IRS’s confession programs, the experts say.
Still, some willful cheats may soon breathe a sigh of relief. The six-year statute of limitations for criminal prosecution is about to run out for people who shut down secret accounts in 2008, when the U.S. crackdown was first taking shape.
But these people remain at risk of prosecution if they have done anything to mislead the IRS about those accounts in the past six years, says Bryan Skarlatos, a lawyer at Kostelanetz & Fink in New York who has helped hundreds of taxpayers confess undeclared accounts.
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