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Come Clean Before It’s Too Late
As we come to the end of the tax/secular year, I wish to reflect on one of the main issues our firm has had to contend with this year. The headline for 2011 was definitely the word disclosure. In February 2009, following the famous case where the IRS successfully sued the iconic Swiss bank-UBS, the IRS announced the first Offshore Voluntary Disclosure Initiative (OVDI), which ultimately resulted in 15,000 US citizens stepping up and admitting that they had financial accounts outside of the US. In February 2011, the IRS announced OVDI II, and finally in June 2011 added OVDI IIb, which came to a close December 9th 2011, bringing in another 12,000 Americans. In our practice while we began to work with clients during OVDI #1, but most of our work dealt with the 2011 initiative. Before I share with you my conclusions and outlook, I would like to share with you a slightly different perspective regarding disclosure.
During these last few months as my staff and I were dealing with attorneys, clients, banks, and Israeli accountants over OVDI issues, I could not help but notice that the idea of disclosure kept popping up in the weekly Torah reading. While my late grandfather, who I worked for as a child, would caution me whenever I made a delivery to one his customers, (restaurants, Ma & Pa grocery stores, fast food stands) not “to mix business with politics or religion”, I cannot help but share with you my idea that the issue of voluntary/involuntary disclosure has been been part of our history and culture for a millennium.Here is a list (not complete) of incidents that appear in the book of Genesis:
1. Adam and Eve getting caught eating the apple in the Garden of Eden.
2. Cain getting caught after killing Abel, Noah, after getting drunk, being outraged at his son.
3. Avraham and Sarah (husband and wife) posing as sister and brother in Egypt, Hagar (second wife) running away from Sarah, who was mean to her.
4. Sarah caught laughing blasphemously when told she would have a baby, Lot trying to hide the identity of his house guests (to protect them from mad hordes), Avraham and Sarah posing as brother and sister in Gerar (to protect his life), the almost sacrifice of Isaac when G-d reveals himself to Avraham.
5. Rebecca revealing her family identity.
6. Jacob and Rebecca (spouses) posing as brother and sister in Gerar, Isaac posing as Esau (to steal the birthright).
7. Laban’s deception of subsituting Leah for Rachel, Laban catching Jacob after he flees with his wives, Rachel’s stealing Laban’s idols, then hiding her theft by sitting on them.
8. Simon and Levy’s deception of Schehem.
9. Tamar’s deception of her father in law Yehuda, then revelation of her identity, Joseph and Potiphar’s wife – his identity kept a secret.
10. Pharoah’s revelation of his dreams, the brother’s revelation of their identities.
11. The most famous voluntary disclosure of all time, Joseph revealing his identity to his brothers!
Obviously, the above list show us that people have been keeping secrets since the beginning of mankind. There are many ways for the truth to come out. Sometimes it is voluntary and sometimes the truth is coaxed out. While the Talmud teaches us that the actions of our forefathers can provide guidance for us, there is no perfect formula for disclosing the truth.Back to 2011 and the issue of disclosing the truth regarding financial assets: we have found that while the IRS’s programs offered a “one-size” fits all, the reality was that many people could simply not fit into any of the OVDI programs. Most commonly, people resisted the IRS’s offer for economic reasons; the cost “of coming clean” (tax) was disproportionate to the the “crime”. Our office has heard many heart-rending stories of innocent people who were simply unaware of the IRS rules. We have also seen people whose parents or grandparents left them an inheritance with a myriad of IRS problems. Fortunately, we have helped many people wishing to comply to remove any criminal claims and try to minimize their tax exposure and penalties.
In 2012, the IRS will begin to require the disclosure of non-US based financial assets on US citizens’ income tax returns (this in addition to the FBAR). Further, in 2013/14, foreign banks, brokerage houses and insurance companies will have to disclose their US customers to the IRS. In short, the window for being someone who voluntarily discloses is quickly closing. The IRS still allows someone to voluntarily disclose and avoid criminal prosecution; we just don’t know what civil penalties a taxpayer who chooses this path will face. In addition, the IRS announced last week that US citizens not owing US income tax can amend their tax returns and send in their FBAR’s without penalties (Quiet Disclosure).
In short, if you are still someone who needs to disclose, please come into the office for a discussion. We will share with you all our experience to help you make the right decision. Also be aware that Israel has just announced its own voluntary disclosure initiative regarding income that should have been declared in Israel (we can help you with this as well).
My feeling is that one needs to be proactive in this current environment, but one must do so with a good legal/accounting team on your side so you can clear the past at a minimal cost. Hopefully, we can not only learn from our forefathers about how and when to reveal the truth, but to use experienced professionals to make to the disclosure as painless as possible.
If you need us, we are there for you.
Philip
OVDI – a term you should know more about
How to avoid a serious tax penalty with the new offshore voluntary disclosure initiative?
As you might know, foreign bank accounts will start reporting to the IRS providing data about their account holders who are US citizens. FATCA (Foreign Account Tax Compliance Act) could have serious consequences on your accounts.
How should you go about the latest changes?
Listen to the following interview to better understand OVDI (offshore voluntary disclosure initiative), receive inside tips and information from tax experts: Philip Stein, CPA, Philip Stein & Associates and Stauart Schabes, Ober | Kaler Attorneys at Law
Podcast: Play in new window | Download
The Team
