Voluntary Disclosure and Asset Protection

Voluntary Disclosure and Asset Protection

Asset protection planning is usually focused around techniques that will shield assets from creditor claims. And as a physician, your biggest asset is likely your medical practice. While asset protection techniques are an important part of managing a practice and creditor protection planning, so too is having an understanding and awareness of activities (or failures to act) that can create liabilities.

The purpose of this article is to discuss the federal reporting requirements for U.S. individuals owning or having control over foreign bank accounts and other foreign assets (collectively known as “Foreign Assets”). U.S. taxpayers are required to report income from Foreign Assets on their income tax returns and their ownership and/or control over Foreign Assets on Internal Revenue Service’s Form TD F 90-22.1 (titled: Report of Foreign Bank and Financial Accounts, aka “FBAR”). While FBAR filing obligations have received increased spotlight due to the IRS offshore voluntary disclosure initiative (“OVDI”), many people are still unaware of the FBAR filing requirements and associated penalties for the failure to file such returns for asset protection.

The OVDI was designed to encourage taxpayers to come forward and report their previously undisclosed foreign accounts and assets rather than risk detection by the IRS. Taxpayers hiding assets offshore who do not come forward risk higher penalties and possibly criminal prosecution.

Asset protection from malpractice claims

Physicians practicing in the United States come from many countries. As a result, many physicians hold and maintain Foreign Assets. The reasons for maintaining Foreign Assets vary. Here are a few examples:

  • Physicians who came to the United States to practice medicine and later decided to make their U.S. residence permanent, maintained Foreign Assets during their stay in the United States
  • Some U.S. physicians intentionally created offshore bank accounts and invested in Foreign Assets as a way of building asset protection
  • Foreign bank accounts were funded with gifted or inherited assets

While the OVDI expiration date was September 9, 2011, individuals who wish to come forward to correct prior tax returns or disclose Foreign Assets can always do so even after the OVDI has expired. While penalties imposed for those who participate in the OVDI receive preferential lower fines, there remains a possibility to negotiate a penalty abatement with the IRS if, as discussed below, you are a qualified candidate for voluntary disclosure.

Taxpayers considering voluntary disclosure should always consult with a tax attorney experienced in this area to determine whether they are a candidate for voluntary disclosure and the proper procedure for making a voluntary disclosure to adequately provide broad asset protection.

If you are a candidate for voluntary disclosure, the first step is to obtain a preliminary approval from the IRS Criminal Investigation Division (“CID”). This preliminary approval step requires disclosure of the taxpayer’s name and Social Security Number so that the IRS can run a check to see if the taxpayer is currently under audit or IRS investigation.

If the search comes up clear, then the taxpayer will be preliminarily approved for voluntary disclosure, and the taxpayer will then need to submit a detailed voluntary disclosure report to CID, which describes the errors, omissions, and frauds on the previously filed tax returns and FBARs (if filed). What usually follows is that the Taxpayer will then prepare and submit accurate amended tax returns and submit them to the IRS for audit and processing. After the amended returns are filed, the IRS will issue an assessment for taxes due plus together with penalties and interest.

Asset protection and filing penalties

U.S. citizens, residents, and certain other individuals must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000 at any time during the year. Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation. All should be considered when trying to protect your assets.

More on medical malpractice and asset protection

Next> Medical Malpractice Insurance: A simple primer to answer the question of whether to insure or not insure

More> Medical Malpractice: Looking at a few strategies to protect your medical practice from claims

More> Medical Malpractice Claims: Understanding your choice of entity and separate business functions

More> DAPTs: Learn more about forming a Domestic Asset Protection Trust

Back> FAPTs: The ins and outs of Foreign Asset Protection Trusts

About the author: Steven Nofar is licensed in Michigan as an Attorney and Certified Public Accountant.  Mr. Nofar practices primarily in the areas of estate and tax planning, business succession planning, asset protection, charitable gift planning and tax controversies with federal, state and local taxing authorities. Mr. Nofar’s clients range from small to large business owners and span across the U.S., Europe, Asia, and the Middle East.  If you need additional information or clarification related to this article, please contact Mr. Nofar at 248-335-5000 or at


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