FATCA Picking Up Momentum & US Gives Foreign Banks More Time to Register

Under the Foreign Account Tax Compliance Act (FATCA), foreign banks, insurers and investment funds must send the Internal Revenue Service information about Americans' and U.S. permanent residents' offshore accounts worth more than $50,000.  Institutions that fail to comply could effectively be frozen out of U.S. markets.

"Since the 2012 release of the Model 1 and Model 2 intergovernmental agreements (IGAs) to implement the Foreign Account Tax Compliance Act (FATCA), there has been robust and growing interest from jurisdictions worldwide to enter into IGAs. To date, the United States has signed IGAs with 26 jurisdictions and has reached agreements in substance or is in advanced discussions with many others.

Foreign financial institutions (FFIs) and other stakeholders continue to express strong support for a broad IGA network as a way to facilitate FATCA compliance while avoiding legal conflicts, and to more effectively and efficiently implement cross-border tax information reporting. They have also expressed practical concerns about the status of FFIs in jurisdictions that are known to be in an advanced stage of concluding an IGA, but have not yet signed an agreement.

For this reason, the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) are issuing this announcement:

1. to provide FFIs in jurisdictions that already have reached an agreement in substance on the terms of an IGA with the clarity they need to prepare to comply with FATCA. 
2. This announcement also addresses stakeholders’ practical concerns by allowing an FFI ten additional days to register in preparation for FATCA implementation on July 1 and still ensure that its Global Intermediary Identification Number (GIIN) will appear on the first public list of GIINs.

This means that countries that have FATCA agreements "in substance" with the United States will be seen as complying with the law, even if the agreements are not finalized by Dec. 31, 2014.

This decision increased to 48 from 26 the number of countries that have "intergovernmental agreements" (IGAs) with the United States, which allow a country's financial institutions to comply with FATCA via their domestic regulators. This would include Brazil, South Korea and South Africa, among other countries, who are in the process of negotiating IGA with the US. 

Before the announcement, many foreign businesses were unsure how to comply with FATCA by July 1, 2014 if their home countries had not yet signed IGA deals with the United States. Countries left off the list were China, Hong Kong, Russia and Singapore. 

26 nations with agreements, with links to their agreements:

1. Bermuda
2. Canada
3. Cayman Islands
4. Chile
5. Costa Rica
6. Denmark
7. Finland
8. France
9. Germany
10. Guernsey
11. Hungary
12. Honduras
13. Ireland
14. Isle of Man
15. Italy
16. Japan
17. Jersey
18. Luxembourg
19. Malta
20. Mauritius
21. Mexico
22. Netherlands
23. Norway
24. Spain
25. Switzerland
26. United Kingdom

Nations treated as having an agreement, that are "in the process" who are added to the list:

1. Australia
2. Austria
3. Belgium
4. Brazil
5. British Virgin Islands
6. Croatia
7. Czech Republic
8. Estonia
9. Gibraltar
10. Jamaica
11. Kosovo
12. Latvia
13. Liechtenstein
14. Lithuania
15. New Zealand
16. Poland
17. Portugal
18. Qatar
19. Slovenia
20. South Africa
21. South Korea
22. Romania

Expansion of IGAs Treated as Being in Effect to Include Agreements in Substance

This announcement aims to address these concerns by providing that the jurisdictions listed on the Treasury and IRS websites as jurisdictions that are treated as having an IGA in effect will also include jurisdictions that, before July 1, 2014, have reached agreements in substance with the United States on the terms of an IGA and have consented to be included on the Treasury and IRS list, even if those agreements have not yet been signed.


Such jurisdictions will be treated as having an IGA in effect from the date that the jurisdiction provides its consent (or April 2, 2014, the date of the public release of this announcement, if later) until December 31, 2014, the date by which the IGA must be signed in order for this status to continue without interruption. Treasury expects to add jurisdictions to this list in the coming weeks as additional jurisdictions consent to inclusion on the list and additional agreements in substance are reached. Jurisdictions that reach agreements in substance on or after July 1, 2014, will not be included in the list of jurisdictions that are treated as having an IGA in effect until the IGA is signed. 
 A jurisdiction may be removed from the list of jurisdictions that are treated as having an IGA in effect if Treasury determines that the jurisdiction is not taking the steps necessary to bring the IGA into force within a reasonable period of time, and, as noted above, a jurisdiction will be removed from the list if the jurisdiction fails to sign the IGA by December 31, 2014. If a jurisdiction is removed from the list, FFIs that are resident in, or organized under the laws of, that jurisdiction, and branches that are located in that jurisdiction, will, from the first day of the month following the month of removal, no longer be entitled to the status that would be provided under the IGA, and will be required to update their status on the FATCA registration website accordingly.



New Dates for Registering to Ensure GIIN Inclusion on the IRS FFI List

As described in Notice 2013-43, FFIs resident in, or organized under the laws of, a jurisdiction that is treated as having an IGA in effect, which, pursuant to this announcement includes jurisdictions listed on the Treasury and IRS websites as having reached agreements in substance on IGAs before July 1, 2014, should register on the FATCA registration website as a registered deemed-compliant FFI (which would include all reporting Model 1 FFIs) or a participating FFI (which would include all reporting Model 2 FFIs), as applicable. Importantly, withholding agents are still not required to obtain the GIINs of FFIs that are treated as reporting Model 1 FFIs before January 1, 2015.

Based on the IRS experience with the registration system and GIIN generation process to date, the IRS now believes that it can ensure registering FFIs that their GIINs will be included on the June 2 IRS FFI List if their registrations are finalized by May 5, 2014 (GMT -5), rather than April 25, 2014, as originally announced. Further, the IRS believes it can ensure registering FFIs that their GIINs will be included on the July 1 IRS FFI List if their registrations are finalized by June 3, 2014 (GMT -5). FFIs that finalize their registrations after May 5 or June 3 may still be included on the June 2 or July 1 IRS FFI List, respectively; however, the IRS cannot provide assurance that this will be the case. The IRS will continue processing registrations in the order received; however, processing times may increase as the May 5 and June 3 dates approach. 

Finally, Treasury and the IRS remind all withholding agents that, in accordance with Reg. §1.1471-3(e)(3), a withholding agent that receives a Form W-8 from a payee with a GIIN that does not yet appear on the published IRS FFI List has 90 days to verify that the GIIN appears on the list before the withholding agent will be treated as having reason to know that the chapter 4 status of the payee is unreliable or incorrect. In addition, a withholding agent that receives a Form W-8 from a payee indicating that the payee has applied for a GIIN has 90 days to obtain the GIIN from the payee and verify it against the IRS FFI List before the withholding agent will be treated as having reason to know that the chapter 4 status of the payee is unreliable or incorrect.

Do You Have Unreported Foreign Income?

Contact the Tax Lawyers at 

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for a FREE Tax Consultation

at: www.TaxAid.us or www.TaxLaw.ms or

Toll Free at 888-8TaxAid (888 882-9243)

Source:

Announcement 2014-17

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IRS to Amend Rules for So that a US Person is Not Deamed to Own PFIC Stock Held By Their Tax Exempt Entity!

In Notice 2014-28, 2014-18 IRB, IRS has announced that it will amend the regs under Code Sec. 1291 to provide that a U.S. person that owns stock of a passive foreign investment company (PFIC) through a tax-exempt organization or account will not be treated as a shareholder of the PFIC.

Code Sec. 1291 imposes a special tax and interest charge on a U.S. person that is a shareholder of a PFIC and receives an excess distribution (defined in Code Sec. 1291(b) from the PFIC or recognizes gain derived from a disposition of the PFIC that is treated as an excess distribution under Code Sec. 1291(a)(2).

Code Sec. 1298(a) sets forth attribution rules that treat a U.S. person as the owner of PFIC stock that is owned by another person. The Code Sec. 1298(a) attribution rules will not apply to treat stock owned (or treated as owned) by a U.S. person as owned by any other person, except to the extent provided in regs. (Code Sec. 1298(a)(1)(B)).

Neither the Code nor the section 1291 regulations provide specific guidance on the application of section 1291 to a U.S. person that owns stock of a PFIC through a tax exempt organization or account, other than an employees’ trust described in section 401(a) that is exempt from tax under section 501(a) (section 401(a) trust). The attribution rules that generally apply to treat a U.S. beneficiary of a nongrantor trust as owning PFIC stock owned by the trust do not apply to a U.S. person that owns an interest in a section 401(a) trust. §1.1291-1T(b)(8)(iii)(C). Thus, a U.S. person that is a beneficiary of a section 401(a) trust is not treated as an indirect shareholder with respect to

any PFIC stock held by the trust for purposes of section 1291.

Although §1.1291-1(e) provides that organizations exempt from tax under chapter 1 of the Code generally are not subject to section 1291 with respect to their direct or indirect ownership of PFIC stock, a U.S. person that is a beneficiary of or has an interest in a tax exempt organization or account may be treated as a direct or indirect shareholder of the PFIC stock owned by the organization or account under §1.1291-1T(b)(7) and (8), and thus may be subject to taxation under section 1291.

The Treasury Department and the IRS believe that the application of the PFIC rules to a U.S. person treated as owning stock of a PFIC through a tax exempt organization or account described in §1.1298-1T(c)(1) would be inconsistent with the tax policies underlying the PFIC rules and the tax provisions applicable to tax exempt organizations and accounts. 

For example, applying the PFIC rules to a U.S. person that is treated as a shareholder of a PFIC through the U.S. person’s ownership of an individual retirement account (IRA) described in section 408(a) that owns stock of a PFIC would be inconsistent with the principle of deferred taxation provided by IRAs. 

Accordingly, the Treasury Department and the IRS will amend the definition of shareholder in the section 1291 regulations to provide that a U.S. person that owns stock of a PFIC through a tax exempt organization or account (as described in §1.1298-1T(c)(1)) is not treated as a shareholder of the PFIC. This amendment will affect all regulations that cross-reference the §1.1291-1T(b)(7) and (8) definitions of shareholder and indirect shareholder, including §1.1298-1T(a).

The regulations incorporating the guidance described in this notice will be effective for taxable years of U.S. persons that own stock of a PFIC through a tax exempt organization or account ending on or after December 31, 2013.

Have an IRS Problem?

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IRS Reminds Those with Foreign Assets of U.S. Tax Obligations

The Internal Revenue Service reminds U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2013, that they may have a U.S. tax liability and a filing requirement in 2014.

The filing deadline is Monday, June 16, 2014, for U.S. citizens and resident aliens living overseas, or serving in the military outside the U.S. on the regular due date of their tax return. Eligible taxpayers get one additional day because the normal June 15 extended due date falls on Sunday this year. To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies. See U.S. Citizens and Resident Aliens Abroad for details.


Nonresident aliens who received income from U.S. sources in 2013 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15 or June 16 depending on sources of income. See Taxation of Nonresident Aliens on IRS.gov.

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.

In most cases, affected taxpayers need to fill out and attach Schedule B to their tax return. Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets.

Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

Separately, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2013 must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). This form replaces TD F 90-22.1, the FBAR form used in the past. It is due to the Treasury Department by June 30, 2014, must be filed electronically and is only available online through the BSA E-Filing System website. For details regarding the FBAR requirements, see Report of Foreign Bank and Financial Accounts (FBAR).

Taxpayers abroad can now use IRS Free File to prepare and electronically file their returns for free. This means both U.S. citizens and resident aliens living abroad with adjusted gross incomes (AGI) of $58,000 or less can use brand-name software to prepare their returns and then e-file them for free. A second option, Free File Fillable Forms the electronic version of IRS paper forms, has no income limit and is best suited to people who are comfortable preparing their own tax return. Check out the e-file link on IRS.gov for details on the various electronic filing options.

Have Un-Reported Income from Foreign Assets?

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Marini & Associates, P.A.

  

for a FREE Tax Consultation Contact US at

www.TaxAid.us or www.TaxLaw.ms

or Toll Free at 888-8TaxAid (888 882-9243 ) 

Source


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Offshore Prosecutions Strikes Fear into US Taxpayers

Catalogue of offshore prosecutions strikes fear into US taxpayers

The US Justice Department (USDoJ) has in the past five years publicly charged 74 accountholders with offshore banking offences, of whom 61 have pleaded guilty, seven were convicted at trial and five await trial. Of the 38 bankers and advisors charged, six have pleaded guilty and several are fugitives, says the USDoJ in an announcement intended to influence US persons preparing to file their returns before the 15 April deadline. 

US taxpayers who have unreported income from Swiss bank accounts may now want to consider applying for the US Offshore Voluntary Disclosure Program (OVDP), which sets a limit to the penalties imposed on them by the Internal Revenue Service (IRS) for failing to declare foreign assets and earnings.

Taxpayers who wish to take advantage of the OVDP must act quickly! 

 

 

Have Un-Reported Income From a Foreign Bank?

Value Your Freedom?

Contact the Tax Lawyers at

Marini & Associates, P.A.

Before April 30th 

  

for a FREE Tax Consultation Contact US at

www.TaxAid.us or www.TaxLaw.ms

or Toll Free at 888-8TaxAid (888 882-9243 ) 

Of the accused, 61 have pleaded guilty, seven were convicted at trial and five are still awaiting trial or at large. The most celebrated is the property investor Victor Lipukhin, accused of maintaining secret UBS bank accounts worth more than USD10 million in the name of sham Bahamas entities. Lipukhin is a Russian citizen and resident, and is not even a US taxpayer.
In the same period, 38 bankers and advisors have been charged with related offences. Six of these have pleaded guilty, most recently the former Credit Suisse banker Andreas Bachmann. Others are awaiting trial, including former Senior UBS Official Raoul Weil, who last December agreed to be extradited to the US, where he plans to defend himself. Several others are still evading the USDoJ's clutches – technically classed as fugitives from American justice.
The Justice Department also recited its success last year in obtaining 'John Doe' court orders against several US banks that held correspondent bank accounts for various foreign banks. These orders, it says, will allow it to identify US taxpayers with bank accounts in Switzerland, the Cayman Islands, Guernsey, the Bahamas, Barbados, Hong Kong, Malta and the UK.
The USDoJ announcement, which is clearly designed to influence US persons preparing to file their returns before the 15 April deadline, also lists its successes against the promotion and use of 'abusive tax shelters'. It draws special attention to last December's Supreme Court ruling in the Woods cases, in which it was held that a 40 per cent penalty applies when a taxpayer engages in an abusive tax shelter scheme that lacks economic substance.

Sources

• US Justice Department
• Tax Controversy Watch
• Holland & Knight (Lipukhin case)
• Reuters (Bachmann case)
• Reuters (Weil case)

- See more at: http://www.step.org/catalogue-offshore-prosecutions-strikes-fear-us-taxpayers?j=682308&e=marini@bellsouth.net&l=346_HTML&u=15428776&mid=1062735&jb=0#sthash.mSWCNyyq.dpuf

Of the accused, 61 have pleaded guilty, seven were convicted at trial and five are still awaiting trial or at large. The most celebrated is the property investor Victor Lipukhin, accused of maintaining secret UBS bank accounts worth more than USD10 million in the name of sham Bahamas entities. Lipukhin is a Russian citizen and resident, and is not even a US taxpayer.
In the same period, 38 bankers and advisors have been charged with related offences. Six of these have pleaded guilty, most recently the former Credit Suisse banker Andreas Bachmann. Others are awaiting trial, including former Senior UBS Official Raoul Weil, who last December agreed to be extradited to the US, where he plans to defend himself. Several others are still evading the USDoJ's clutches – technically classed as fugitives from American justice.
The Justice Department also recited its success last year in obtaining 'John Doe' court orders against several US banks that held correspondent bank accounts for various foreign banks. These orders, it says, will allow it to identify US taxpayers with bank accounts in Switzerland, the Cayman Islands, Guernsey, the Bahamas, Barbados, Hong Kong, Malta and the UK.
The USDoJ announcement, which is clearly designed to influence US persons preparing to file their returns before the 15 April deadline, also lists its successes against the promotion and use of 'abusive tax shelters'. It draws special attention to last December's Supreme Court ruling in the Woods cases, in which it was held that a 40 per cent penalty applies when a taxpayer engages in an abusive tax shelter scheme that lacks economic substance.

Sources

• US Justice Department
• Tax Controversy Watch
• Holland & Knight (Lipukhin case)
• Reuters (Bachmann case)
• Reuters (Weil case)

- See more at: http://www.step.org/catalogue-offshore-prosecutions-strikes-fear-us-taxpayers?j=682308&e=marini@bellsouth.net&l=346_HTML&u=15428776&mid=1062735&jb=0#sthash.mSWCNyyq.dpuf

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Swiss Bank Information Can NOW be Disclosed to Foreign Tax Authorities WITHOUT Notice!

We previously  posted on Wednesday, April 2, 2014, Your Swiss Bank Info Is Being Transferred To The US Govt As We Speak! ... This Is Not An April Fools Joke! where we discussed that The United States Justice Department has received 106 requests from Swiss entities to participate in a settlement program aimed at ending a long-running probe of tax-dodging by Americans using Swiss bank accounts according to a senior US official.

These banks will have to disclose a great deal of information about 
their American clients, even including some of their names 
by April 30, 2014!

To make matters worse for US tax dodgers ... if that is even possible ... Swiss Parliament has approved a legal amendment that tax evaders will not always have to be told if Switzerland sends information about them to other countries. The move further loosens Swiss banking secrecy laws in order to avoid a global backlash.

So the reality call for all you US Citizens and residents with a unreported income from foreign banks is as follows:

1. If your account is with one of 106 Swiss Banks, then your information is probably already on its way to the IRS on or before April 30, 2014!
2. If your account is with another Swiss Bank, you are probably already received notification that as of July 1, 2014, your account information will be turned over to the IRS, pursuant to FATCA and
3. If you're not with the Swiss bank your information, as of July 1, 2014, your account information will be turned over to the IRS, pursuant to FATCA

 

US taxpayers who have unreported income from Swiss bank accounts may now want to consider applying for the US Offshore Voluntary Disclosure Program (OVDP), which sets a limit to the penalties imposed on them by the Internal Revenue Service (IRS) for failing to declare foreign assets and earnings.

However, once the Swiss banks disclosed an account holder's name to the IRS, which 106 of them y must do by no later than April 30, 2014; the OVDP option is no longer available to that US Taxpayer Account Holder. 

Taxpayers who wish to take advantage of the OVDP 
must act quickly! 

 

The US Can Use Swiss Data for Law Enforcement Actions!    

The new agreement makes clear that “personal data provided by the Swiss banks… will be used and disclosed only for purposes of law enforcement (which may include regulatory action) in the United States or as otherwise permitted by US law.”

 

Have Un-Reported Income From a Swiss Bank?

Value Your Freedom?

Contact the Tax Lawyers at

Marini & Associates, P.A.

Before April 30th 
 

  

for a FREE Tax Consultation Contact US at

www.TaxAid.us or www.TaxLaw.ms

or Toll Free at 888-8TaxAid (888 882-9243 ) 

Sources:
Swissinfo 

STEP

Your Swiss Bank Info Is Being Transferred To The US Govt As We Speak! ... This Is Not An April Fools Joke!

We originally posted Tuesday, January 28, 2014 "Offshore Swiss Bank Account? This May Be Your Last Chance To File A Voluntary Disclosure!," where we discussed that The United States Justice Department has received 106 requests from Swiss entities to participate in a settlement program aimed at ending a long-running probe of tax-dodging by Americans using Swiss bank accounts according to a senior US official.

On August 29, 2013, we previously posted "Swiss Banks Agree to Plan to End Past US Tax Evasion Issues!" , where we discussed that Swiss banks were ready to pay hefty fines for sheltering United States tax fugitives under the terms of a new deal given the green light by the Swiss government. 

Kathryn Keneally, a senior official of the US DOJ's tax division, said the department was 'gratified' by the response to the offer, although it does not expect that all the applicants will be granted non-prosecution. The program is open only to banks, who will have to pay between 20 and 50 per cent of the value of undeclared US-owned accounts as at 1 August 2008.

These banks will have to disclose a great deal of information about 
their American clients, even including some of their names 
by April 30, 2014!

The Department of Justice's Tax Division will strictly enforce an April 30 deadline for Swiss banks to comply with disclosure provisions of a bilateral U.S.-Switzerland program to root out tax evaders, a senior DOJ official has subsequently stated. 

We have spoken to numerous clients, who have been advised this week, that their Swiss banks are in the process of turning their account information over to the IRS, pursuant to this US settlement program.

US taxpayers who have unreported income from Swiss bank accounts may now want to consider applying for the US Offshore Voluntary Disclosure Program (OVDP), which sets a limit to the penalties imposed on them by the Internal Revenue Service (IRS) for failing to declare foreign assets and earnings.

However, once the Swiss banks disclosed an account holder's name to the IRS, which they must do by no later than April 30, 2014; the OVDP option is no longer available to that US Taxpayer Account Holder. 

Taxpayers who wish to take advantage of the OVDP 
must act quickly! 

 

The US Can Use Swiss Data for Law Enforcement Actions!    

The new agreement makes clear that “personal data provided by the Swiss banks… will be used and disclosed only for purposes of law enforcement (which may include regulatory action) in the United States or as otherwise permitted by US law.”

 

Have Un-Reported Income From a Swiss Bank?

Value Your Freedom?

Contact the Tax Lawyers at

Marini & Associates, P.A.

Before April 30th 
 

  

for a FREE Tax Consultation Contact US at

www.TaxAid.us or www.TaxLaw.ms

or Toll Free at 888-8TaxAid (888 882-9243) 

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IRS Targets Americans Living In Israel!

According to The Jewish Daily Forward, this upcoming tax season could entail some unpleasant surprises for United States citizens who either live in Israel or who hold bank accounts there.

Filing requirements for these Americans have become more rigorous and the odds of being audited by the Internal Revenue Service are higher than they’ve ever been. In fact, tax accountants working in Israel estimate that almost every American expatriate living in Israel and filing for a child tax credit in their annual return can expect an audit.

“I’ve seen more audits in the past year or two than I’ve seen in the previous 30 years combined,” said Philip Stein, an American CPA working in Israel. “It created a difficult atmosphere both for honest tax preparers and for honest families filing their returns.”

As the IRS cracks down on offshore accounts and on suspected fraud from overseas, Israel faces extra scrutiny. Part of it has to do with the federal government’s new campaign to uproot the practice of secret overseas bank accounts, some of which are in Israel. But part of the heightened scrutiny is a result of specific fraudulent activity carried out by Americans living in Israel that has effectively made the entire community a target of suspicion.

The $1,000 child tax credit for each child, enabled families who do not owe taxes to receive the cash value of the tax credit under certain conditions. Overseas U.S. citizens who pay taxes in their country of residence can qualify for the cash credit if they can demonstrate the taxes that they are paying overseas meets the threshold the IRS requires for tax filers living in America

The prospect of receiving a handsome yearly check from Uncle Sam prompted many of the estimated 250,000 United States citizens living in Israel to add a tax credit request for their children to their annual tax return. But alongside these legitimate claims, several self-proclaimed tax preparers in Israel offered American citizens who did not qualify for the credit a chance to claim it. Through ads in community newspapers — many of them Orthodox — and via word of mouth, they promised families that they could qualify even if they did not make enough earned income to qualify for the benefit.

For these families, some with eight or 10 children under the age of 17 and with very little income from work, the preparers helped submit fraudulent returns, stating false income from work in Israel. In other cases, they requested credit for children who were not recognized as United States citizens.

As the claims mounted, suspicion grew at the IRS, which eventually set up an “Israel project” for dealing with suspected tax returns from Israel, said Charles Ruchelman, a former government tax lawyer who now represents clients in tax controversies and litigation. “When they identify a trend, they start a project, and that’s what happened here,” he said. Eventually, almost all tax returns from Americans living in Israel that included a request for child tax credit were put under extra scrutiny and many have been audited.

“I never thought it would happen to me. Last week I received a letter from the IRS stating that I owed tens of thousands of dollars in taxes and penalties,” wrote a Haredi blogger after receiving the IRS envelope containing the audit announcement.

One Jerusalem resident told the Forward that her family spent months gathering the documents needed for the audit, which eventually found no wrongdoing in the family’s tax returns. “They wanted to see every pay stub and every document,” said the mother of four, who asked not to be identified due to concern that it would negatively impact her tax case.

Besides such income data, the IRS has demanded that families in Israel supply birth certificates, passports and detailed listings of their travel in and out of Israel to determine their eligibility for the child tax credit. In addition, the IRS requires Israelis to have all documents translated by a professional translator, a demand that is not imposed on other countries and results in hefty translation bills for those being audited. “These are abusive audits,” argued Adlerstein.

While audits have been ramped up, no criminal charges have been filed against any of the fraudulent tax preparers working in Israel. .

“The IRS has decided not to believe anything coming out of Israel and now it has in place this massive audit program that is creating great hardship for families, especially young families with children,” said Stein.

The IRS did not respond to questions from the Forward regarding its audit policy of tax filers living in Israel.

While these audits impact only Americans living in Israel, any other American citizen holding a bank account in Israel could also face much more scrutiny than in the past for an entirely different reason: the IRS’s new focus on offshore accounts.

This focus has led to an increase in the enforcement of the requirement that Americans and American residents file a Foreign Bank Account Report on every account held abroad that is worth more than $10,000. “They have become more aggressive, they are less forgiving, but they are not targeting [specifically] Israel,” said Ruchelman.

Initially, the IRS went after Swiss banks, which for years were synonymous with secrecy. Eventually, the U.S. Department of Justice succeeded in getting most foreign financial institutions to report on accounts belonging to United States citizens. Lack of compliance, banks were warned, would limit their ability to do business in America.

Israeli banks, under the same threat, also increased their efforts to identify clients who are United States citizens and report them to the IRS. A series of prosecutions against American citizens trying to avoid reporting their accounts in Israel and against tax preparers who advised their clients to use Israel as a tax shelter helped drive home the point.

The penalties for not reporting overseas accounts are hefty. But this has had the unintended effect of deterring, rather than encouraging, many from filling in the FBAR forms, for fear they will be taxed and penalized retroactively. The IRS now allows account holders to join a partial amnesty plan that will allow them to report their accounts and face only minimal penalties.

A recent report issued by the Government Accountability Office found that 4% of the accounts reported worldwide through this program were in Israel, making it the fifth most likely destination for overseas bank accounts.

Increased FBAR enforcement has impacted a wide circle of Americans, mainly Jewish, with ties to Israel. It includes not only those who have immigrated to Israel, or made aliyah, as adults, but also children of American citizens who are citizens themselves but may have never even visited the United States. The law is also relevant to any American who has opened an account in Israel in the past for use during visits to Israel or to help manage rental income in Israel.

Lawyers and accountants working with dual American–Israeli citizens report an increase in the number of clients seeking to close their accounts in Israel in order to avoid dealing with the FBAR law. Some have also met Israelis who are considering giving up their American citizenship for the same reasons.

Are You an American Living in Israel?

Are You an American With an Undeclared Israeli Account?

Contact the Tax Lawyers at 

Marini & Associates, P.A.

 for a FREE Tax Consultation at:   

 www.TaxAid.us or www.TaxLaw.ms or

Toll Free at 888-8TaxAid ((888) 882-9243)

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