THE WRONG QUESTION TO ASK ABOUT OFFSHORE ACCOUNTS: WHAT ARE THE ODDS OF BEING CAUGHT?

In my post of July 14, 2013, “OVDP or Nothing At All,” I wrote:

I believe the wiser approach for most is still to seek the shelter of certainty by entering the OVDP  (IRS 2012 OFFSHORE VOLUNTARY DISCLOSURE PROGRAM). I believe the analysis for many is not so much as “risk tolerance” or can one sleep at night with IRS snooping about; but, “risk capacity” or how much can one afford to lose? Those who consider the likelihood of being caught to be remote should ponder that Hurricane Andrew was a remote outlier until is occurred. Although unlikely to repeat, I’ve not dropped my wind and flood insurance coverage. Outliers happen all the time with regularity. Moreover, getting caught is becoming less and less an outlier event with increased inter-governmental cooperation and leads from the 2009, 2011 and 2012 OVDPS directing IRS to others which, in turn, leads to yet others. Some, however, will still bet that the government lacks the resources to pursue every quiet discloser. That will not be comforting to one who finds him or herself among those the government has selected to pursue.

Still, many perspective clients continue to ask, “How likely is my being discovered by IRS?”  My answer is always, “Very likely, if they catch you.”  The client looks at me as if we are speaking different languages.  And we are:  The client is talking about risk tolerance. What are the odds of IRS discovering?  But, that is the wrong question.  They should be asking themselves, can I afford to take the hit or IRS catches me no matter how unlikely that event may be, and it is becoming more and more likely?  Most people believe going to jail and losing most of your assets is an unacceptable risk.  In any event, a lawyer is not an odds-maker and cannot advise about the likelihood of being nabbed. Lawyers can advise about the law and consequences for failing to come into compliance with the law.

RISK IS A NORMAL ASPECT OF LIFE

Things will go wrong and that is risk.  Recently, I was about to leave my home to visit my mother.  I pushed the button to activate my garage door opener and nothing happened because the spring on the door had snapped.  Garage door springs don’t snap often for any one homeowner, but across the nation many snap every day and every time I leave home that risk presents although I do not consciously think about it every day.  If the risk were not tolerable, I could learn how to make the repair and have the tools and parts on hand.  But, I can live with that risk even should it occur at an inopportune moment.  Many have offered wisdom on risk taking:

Robert Frost:  “We took risks.  We knew we took them. Things have come out against us.  We have no cause for complaint.”

Harold Macmillan:  “To be alive at all involves some risk?”

We consciously and unconsciously take risks every day.  We drive to work not thinking all the time of the likely risk of an accident and remote risk of death.  We put the risk aside because driving is a must if we are to get about.  We board planes for business trips and vacations assuming the risk flight because we view the hazard as remote and always happening to someone else.  Some of these daily risks are born from absolute necessity and some are voluntarily assumed.  Hurricane Andrew, the Japan nuclear accident and Wall Street’s meltdown are all examples of outliers.  Events at the two ends of the bell curve we foresee in the back of our conscious minds but often ignore to our peril.  For, outliers do occur regularly and we should understand that for each of us there are some remote risks, however unlikely, we cannot afford to assume. Most who are sane would not play Russian roulette with a gun having 1,000 chambers.  The risk of a bullet in the discharged chamber is remote but the result is simply too drastic.

General George S. Patton once said, “Take calculated risks.  That is quite different from being rash.”  Investment advisors often question investors about their “risk tolerance.”  This is a psychological measure of the degree of risk you can tolerate without losing sleep.  They less often consider “risk capacity” or the amount of loss one can handle given your present financial situation, age and health.  A 25-year-old may be able to make up over time the total loss engendered by jail time plus an egregious civil fine; a retired 70-year-old could not.  Simply put:

 An egg should have enough common sense to know its limitations. An egg should not sit on a wall; for, should an egg fall; well, we all know what happened to Humpty Dumpty.

TAK, SHTO DELAET? 

A Russian, faced with an unsolvable problem, will often say, “
“Tak, shto delaet? (So, what’s to do?)  My advice to those still out in the cold with unreported offshore accounts:

    • Take action now to come into compliance.  Places to hide are becoming fewer.  Moreover, the 2012 OVDP has no expiration date but may end at any time or IRS may announce harsher terms.  Historically, the 2009, 2011 and 2012 programs were announced after a much publicized IRS success.  For example, the 2009 program followed the UBS John Doe Summons being publicized.  As the noose draws tighter on offshore scofflaws, IRS may decide to once again up the ante for obtaining relief from criminal charges and the potential draconian FBAR penalties.
    • Consult with a reputable lawyer, experienced with offshore compliance, who not only will explain the law and alternatives, but will make sound and mature judgments in advising you. Be skeptical of lawyer websites or advertisements that make promises.  Each Offshore case is unique and requires critical analysis at the outset to determine the most appropriate course to a safe harbor.

In Brooklyn the street-wise know, “in this life you get nuttin’ for nuttin’ buster.”  The cost to come into compliance in fees, tax, penalties and interest is significant.  But, thinking about what you will lose is backwards thinking.  Many offshore non-reporters have accounts they are now afraid to touch.  Thus, their money is unavailable to them.  Coming in from the cold has a large cost, but great advantages:

    •  Funds remaining after a closing agreement with IRS is secured, are repatriated and represent clean funds that can be used or saved.
    • Participants in the OVDP are not felons, have no criminal history or pubic taint to reputation.  Their settlement and tax return information remain private.
    • The shadow of fear hanging overhead is removed.  IRS will not come knocking at your door once you are accepted into the OVDP.

Thus, the decision whether to come into compliance is not so much about what is lost, but rather, what is gained that, from fear of threatened criminal prosecution, was before unavailable.

© 2013 By Robert S. Steinberg, Esquire
All rights reserved

Contact Robert Steinberg at 305-253-2557
http://www.steinbergtaxlaw.com

 

 

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4 Responses to THE WRONG QUESTION TO ASK ABOUT OFFSHORE ACCOUNTS: WHAT ARE THE ODDS OF BEING CAUGHT?

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