FATCA – the Foreign Account Tax Compliance Act – will soon require banks and other financial institutions worldwide to report accounts with ties to the United States. Although Americans can legally hold assets offshore, federal law says they must be disclosed annually. Failure to disclose one’s assets may be a felony and will expose the account holder to huge civil penalties.
The Bank Secrecy Act has long required U.S. taxpayers to report offshore financial holdings. That includes checking accounts, savings accounts, foreign brokerage accounts, offshore hedge funds, certificates of deposit, commodities accounts (gold and silver) and even some insurance products that contain a savings component. Compliance with the law, however, has been spotty. In 2010 Congress passed FATCA to better enforce compliance with foreign reporting rules.
FATCA requires foreign financial institutions to become the eyes and ears of the IRS. They must review accounts and report those that have ties to the U.S. Unfortunately, many dual nationals, foreign born Americans, green card holders and expats who are living abroad simply don’t understand the law and their obligations. They could soon be getting a huge tax bill from Uncle Sam.
The United States is encouraging foreign countries to sign an intergovernmental agreement with the U.S. Treasury. Those agreements, called IGA’s, are designed to streamline the process and making reporting easier for foreign banks and others. Although Israel has not yet signed on to FATCA, it is in active negotiation with U.S. authorities.
A working group consisting of the Israel Securities Authority, Israel Tax Authority, justice ministry and finance ministry is already active. Published reports say that Israel is considering a deal in which the Israel Tax Authority would collect the information from banks and turn it over to the IRS.
However the agreement is structured, Israeli’s who are also U.S. citizens or residents or Americans holding money in Israeli banks should expect to have those accounts disclosed. Anticipating that some customers would simply close their accounts or move their money, the new FATCA regulations will include a look back provision. In other words, if you have unreported money or assets in Israel, it’s too late to hide. The time to deal with the problem is now.
The penalties for an unreported account are as high as $100,000 per account or 50% of the highest account balance. These penalties are for each year the account was unreported for a maximum of 8 years. (The typical penalty is imposed on just 1 year – still, that means loss of half your money!)
There is an amnesty program (called the Offshore Voluntary Disclosure Program or OVDI) that is a great bargain for people who willfully or knowingly didn’t report their accounts. No audit, no prosecution and a one time reduced penalty. Taxpayers who can prove their actions were unintentional may be eligible for a traditional or voluntary disclosure and get even better treatment.
There is a hitch with amnesty, however. The IRS says no deals if they discover your account first or if a foreign bank makes a FATCA disclosure naming your account. In other words, time is running out to come forward.
The bottom line? FATCA has huge implications for Americans with ties to Israel. If you are a signer on an account located in Israel, have money in any of the Israeli banks such as HSBC Israel, Bank Leumi, Hapoalim or Bank Mizrahi Tfahot, or invest your money there and haven’t reported those investments or accounts, contact an attorney specializing in offshore reporting immediately. As we have already reported, Bank Leumi may have already turned over names to the IRS making it too late for those account holders to take advantage of the OVDI amnesty program.
Have an unreported account or questions about FATCA or FBARs? We can help. For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in complete confidence.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax related services available worldwide.
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Written by Brian Mahany, Esq.