Americans are pulling their funds out of Israeli banks in advance of FATCA. That was part of an article published earlier this week in Globes, an Israeli business news source. The article states, “Israeli banks say that European customers are beginning to withdraw their money from banks but at this stage still in small amounts, and not on the scale of US customers.”
If you are closing your account or transferring your money out of Israel in anticipation of FATCA, it’s too late. Let me rephrase that, it’s too late and dangerous.
As many readers already know, the Foreign Account Tax Compliance Act – FATCA – will soon require foreign financial institutions to research their customer base and report accounts that are owned or controlled by U.S. taxpayers. Having signature authority over a foreign accounts also triggers the reporting.
Since 1970, Americans have been required to report foreign financial assets if the aggregate value of those assets exceeds $10,000. That means if you have signature authority over two Israeli accounts, each with a balance of $6000, both accounts must be reported. Reporting is done annually on a Report of Foreign Bank and Financial Accounts – FBAR for short.
Although the law has been on the book for decades, it has been widely ignored. No more. Congress has increased the fines for failure to file an FBAR. The penalties are huge. If the IRS feels your failure to file was willful the penalties include possible jail time and up to the greater of $100,000 or 50% of the highest balance of the account.
With FATCA just months away, some Israeli banks are already cooperating with the IRS and others are increasing their scrutiny. The reaction of many Americans is to simply close their account and transfer the money elsewhere. Unfortunately, while that plan sounds great, it won’t work.
The IRS has been asking banks to look for people who recently closed accounts or transferred large sums of money. That means it is already too late.
Worse, the IRS considers moving money in anticipation of FATCA to be an affirmative act of tax evasion. If you are not careful you could be facing two felonies – Failure to File an FBAR and Tax Evasion. (We have seen and reported on several cases like this already – read back posts on this blog!)
The best time to come into compliance is now. For taxpayers who knowingly hid money from Uncle Sam, the current Offshore Voluntary Disclosure Program offers a fresh start – no audit, no prosecution and a reduced penalty. That amnesty penalty is steep (27.5%) but sometimes an experienced FBAR lawyer can reclassify some of the accounts into lower penalty brackets.
For those account holders who simply were unaware of the foreign reporting requirements, a voluntary disclosure may get the penalty reduced to $10,000 or even less. Unlike the IRS’ amnesty program, there are no guaranties with traditional disclosures and taxpayers may face audit. Still, if you can demonstrate that your actions were not “willful,” it is possible to dramatically reduce or even eliminate penalties.
There is one catch – the IRS says all bets are off if they find you first. With FATCA just months away, the time to come into compliance is now. Delay can be very costly. Try to “beat” the IRS and move your money out of Israel or create a nominee account in a fictitious name and you may be facing prison.
Because the offshore disclosure rules are so complex, we strongly recommend speaking with an experienced FATCA attorney immediately. Once you are in compliance, an expat tax service or good CPA should be able to keep you in compliance at little expense.
About the author. Brian Mahany is a tax attorney specializing in foreign reporting for individuals and corporations. He is admitted to the United States Tax Court and writes for TaxConnections as well as his own blog, Due Diligence. He can be contacted at or by telephone at (414) 704-6731 (direct). Most services can be handled for a flat fee. Initial consultations are without charge.