Many taxpayers not willing to participate in the IRS’s Offshore Voluntary Disclosure Initiative (OVDI) have attempted to make “quiet disclosures” instead, in the hope that the IRS does not pick up on them for audit or penalty purposes. A quiet disclosure encompasses the filing of new or amended tax returns that report offshore income, and Foreign Bank Account Reports (FBARs) that provide other account information regarding the taxpayer’s interest in foreign accounts.  It is a discreet disclosure attempting to avoid penalties imposed under the IRS’s official voluntary disclosure program while making a taxpayer compliant with his or her tax reporting responsibilities.

Keep in mind, a key benefit of the OVDI program is the substantial mitigation of criminal tax prosecution. Taxpayers that proceed with a quiet disclosure and are subsequently caught do not obtain this benefit. So those taxpayers are essentially rolling the dice and waiting to see what happens.

However, recent discussions by professionals suggest that quiet filers may be more at risk than they suppose. Speaking at the American Law Institute tax controversy conference in Washington, Scott D. Michel of Caplin & Drysdale said that the IRS has apparently improved its ability to detect these “quiet” non-program disclosures. Michel said, in speaking with revenue agents, it is clear that they are unhappy with taxpayers who engage in such practices, even if there may have been good cause to do so, and they show all signs of being aggressive in these examinations. Michel had words of caution for those taxpayers considering making a quiet disclosure of an offshore account instead of going into the voluntary disclosure program, by stating “I think the odds of being detected are significantly higher now than they were two to three years ago.”

The IRS has also made no secret of its disdain for those who chose quiet disclosure over participation in its OVDI program in its frequently asked questions 15 & 16 of the 2012 OVDI program. These FAQs can be found here:

http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers

In those FAQs, the IRS has warned taxpayers that those who have already made quiet disclosures should “be aware of the risk of being examined and potentially criminally prosecuted for all the applicable years.” The IRS encourages taxpayers to take advantage of the OVDI program before discovery. These FAQs also state the detection of a quiet disclosure also eliminates the possibility of reduced penalties offered under the OVDI program.

The IRS is cracking down on quiet disclosures now, more than ever. This increased detection by the IRS has the potential to hurt tens of thousands of citizens and new residents who may have accounts overseas and made the mistake of believing a quiet disclosure would shield them from further IRS scrutiny. Quiet disclosures needlessly put taxpayers at risk for criminal and civil penalties. With a quiet disclosure, individuals and businesses have already provided all the information the IRS needs to catch them.

Deciding whether to participate in the OVDI program, follow the quiet disclosure path, or do nothing is a very important decision with very high stakes in terms of potential monetary penalties and possibly criminal prosecution. Offshore account holders can no longer rely on bank secrecy to protect them because of FACTA, so the issue of detecting unreported accounts has become more a question of when, not if. Fortunately, you can still participate in the OVDI program even if you made a quiet disclosure as long as you enter the program before you get caught.

If you are debating whether to participate in the OVDI program, follow the quiet disclosure path, or have already filed a quiet disclosure…we can help!