by Brian Mahany
The 2011 tax amnesty (Offshore Voluntary Disclosure Initiative or “OVDI”) is now over and everybody with unreported offshore accounts has come clean. Nothing to worry about anymore, right? Wrong. The government’s crusade against unreported foreign accounts and offshore income continues. According to a recent press release, the U.S. government just signed an agreement with the Supervisor of Banks in Israel.
The Bank of Israel through the Supervisor of Banks oversees Israeli banking practices. According to a press release from the Bank of Israel dated August 30th, Israel and the US Federal Reserve and FDIC have signed an agreement to exchange information. According to Israeli banking authorities, the agreement will help both countries monitor “cross border activity.”
Although there are not many specifics offered, references to “information exchange” and “cross border activity” mean only one thing. Both countries have committed to identify taxpayers with unreported accounts.
Having an account in a foreign country is absolutely legal as long as the account is reported and any interest or other income is declared. The same holds true for brokerage accounts, CD’s and other financial accounts.
Americans living overseas, dual nationals and foreigners living here or possessing a U.S. green card must in most cases tell the IRS about foreign accounts. Interest, dividends or capital gains are reported on the 1040 form while the accounts themselves are disclosed on a Report of Foreign Bank and Financial Account or “FBAR” form. Failure to do either is a felony and can subject the account holder to massive penalties that often wipe out the entire account balance.
Account holders with unreported accounts at Bank Leumi, Hapoalim, Bank Mizrahi Tfahot or other Israeli banks should consider entering into a quiet or voluntary disclosure with the IRS before the IRS finds them. Making such a disclosure, however, is no small undertaking. There remains a risk that the IRS could still impose a 50% penalty if the government determines the failure to report was willful.
Now that the foreign account tax amnesty program is over, taxpayers should absolutely consult with a tax attorney or CPA well versed in foreign reporting requirements and disclosures. Most are not. Taxpayers who received bad advise from their tax preparer should also consider consulting with a lawyer – reliance on a tax professional is grounds for an abatement of penalty and there may be a good claim against the preparer for negligence.
The tax lawyers at Mahany & Ertl have helped people across the U.S. and beyond including Israeli dual nationals. For a no obligation, confidential consultation, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at
Mahany & Ertl, LLC – America’s Tax Lawyers. Offices in Milwaukee, Detroit, Portland and San Francisco (satellite). Services nationwide.
[Ed. Note: the URL for the press release is http://www.boi.gov.il/press/eng/110830/110830ugggg.htm]