There’s a lot of ambiguity in the classic case of somebody squirreling away money. In a lot of cases, it’s not so easy to figure out, and the IRS is not coming forward with a lot of guidance because they’re probably trying to figure it out themselves.
One of the situations that’s pretty clear though, is what happens if you go through this voluntary disclosure problem. You’re going to have to pay a penalty. A 20% penalty: the 20 percent being the 20 percent of the highest balance in each of your accounts in the last six years.
What are your alternatives? Your other alternative is to go through the standard audit procedure. Meaning you file your tax returns, you report your stuff, you see what happens. Do they pick your stuff out of the pile when you file it by mail? If they pick it out of the file, what do they do with the revenue agent comes and audits you, what sort of penalties do they propose? If they propose penalties, can you plead something like the dog ate my homework and be excused?
Hard to tell, but this is your alternative and in the cases that I’ve been dealing with so far, talking with people on the phone, counseling them, putting them through the amnesty procedure, a lot of them have said they would rather have the guaranteed certainty of a 20 percent penalty then go through with the ambiguity and unknown result of an audit.
In a few cases, it’s very clear that the audit procedure will be much better than the 20 percent penalty, but in many others, it’s not so clear. Before you file the amnesty process, I suggest you sit down and you just try and brainstorm out what your choices are.
Frankly, door No. 2, the standard audit process, can get pretty scary, particularly if you have foreign corporations, foreign partnerships, foreign trusts, and that kind of thing and you haven’t done all the filings and the reportings.
So, don’t just go for one or the other. Think it through carefully before you do.
My office number is 626-689-0060. My cell number is 626-437-2500. Give me a call to see how we can help.
-Phil
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