October 05, 2016 | BY Shulem Rosenbaum
Israel Your Home: No Longer A Tax Shelter
On September 30, 2016, Israeli banks and financial institutions delivered all financial information about American clients and U.S. Green Card holders with Israeli bank accounts to the Israel Tax Authority. The Israel Tax Authority is expected to supply the IRS with the names, account numbers and account balances of any U.S. account holders with more than $50,000 shortly.
Foreign Account Tax Compliance Act (FATCA)
On June 30, 2014 the American and Israeli governments entered into an intergovernmental agreement (IGA) to target taxpayers who use foreign accounts for tax evasion purposes. On August 1, 2016 the Knesset Finance Committee approved the implementation of FATCA along with other regulations passed by the Finance Ministry. Although the agreement was challenged to be unconstitutional, the Israeli Supreme Court threw out the petition and allowed Israeli banks to enforce the law. Under the law, bank accounts of American citizens and Green Card holders with more than $50,000 will be reported to the IRS. In addition, banks that are suspected to withhold information may be required to supply the IRS with all account information.
In addition, a temporary agreement allows for gemachim and nonprofits to not be reported until 2018. Under this agreement, gemachim will have to register with the Israeli Tax Authorities to be designated as “public service institutions” and be exempt from FATCA.
Many Americans maintain bank accounts in Israel for various reasons: business ties, costs associated with owning real estate in Israel, accounts to assist family members, etc. It is completely legal to have an account in Israel, provided that (1) the account is disclosed to the IRS on (a) IRS Form 1040, Schedule B, (b) the “FBAR“, Report of Foreign Bank and Financial Accounts, Form TD 90-22.1, (c) new IRS Form 8938, Statement of Specified Foreign Financial Assets, and (2) income earned in the account, including interest, dividends and capital gains, is reported to the IRS and taxes paid on this income. (Taxes paid in Israel on such income may offset U.S. taxes.) So long as these conditions are met, the account is tax compliant. If the account is not tax compliant, a U.S. taxpayer who owns or has beneficial interest in an Israeli account can be prosecuted for civil and criminal tax fraud.
October 05, 2016
tax - regulation