by Brian Mahany
Israel and the United States have a long, rich history as friends. Through wars and regional strife, we usually share common goals and ideals. Until now. Uncle Sam wants Israeli banks to disclose the names of U.S. taxpayers with accounts in Israel. Although American law already requires taxpayers to disclose their offshore holdings, next years banks are required to make similar disclosures to the IRS.
Previously we reported that Bank Leumi is requiring customers to certify that their accounts have been disclosed to U.S. authorities. Now, press reports say other banks including Bank Hapoalim are also requiring customers to certify compliance. With over 100,000 Americans living in Israel and many Israelis working and paying taxes here, the new enforcement drive affects many.
While some people go to great lengths to hide money from tax authorities, most of the people we speak with simply didn’t know or understand the offshore reporting laws. Most of our tax clients are dual nationals, foreign born Americans or Americans with legitimate foreign business interests.
Sending money to foreign banks is legal but those foreign accounts must be disclosed annually on a Report of Foreign Bank and Financial Account form (“FBAR”). Failure to tell Uncle Sam about your foreign interests is a felony and can lead to penalties of 50% of the account value for each year an account is unreported. With such high penalties, there is no room for error. Foreign business interests and gifts have additional reporting requirements which also carry high penalties.
While it is easy for Bank Leumi and Bank Hapoalim to simply tell customers they must report their account, the advice is a bit late. Unless the account was just opened, taxpayers may face huge penalty assessments by doing so.
The IRS is currently running an amnesty program for unreported foreign accounts. Called the Offshore Voluntary Disclosure Program (or “OVDI”), taxpayers can avoid possible loss of their entire account, prison and an audit. The price is still steep, however – 27.5 of the highest balance of the accounts during the past 8 years.
There are alternatives to the amnesty program for taxpayers with small balances (under $75,000) and those who can prove their noncompliance was not willful. (There are additional technical exceptions as well.)
If you have an unreported bank or brokerage account in Israel, call us. We can carefully review your situation and provide you with the available options. Don’t wait, however. If the IRS finds you first all deals are off.
For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at . All calls are protected by the attorney client privilege and are kept in strict confidence. Our tax lawyers have helped many taxpayers with a wide variety of foreign reporting issues including unreported Swiss, Israeli, Canadian and Indian bank accounts.
Mahany & Ertl – America’s Tax Lawyers. We proudly give taxpayers a voice. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS services available worldwide.