Recently, there was an article in the Jerusalem Post reporting that the Israel Treasury Director-General has “established a committee…to examine how Israeli financial institutions can conform to the US Foreign Account Tax Compliance Act (FATCA).” As you probably know, if you are a “US Person,” your bank, retirement account manager, and, for that matter, any group that holds your shekels, must, in a few months, report your holdings directly to the IRS. This includes full disclosure of the details of your accounts. It is quite clear that the IRS will then compare that information to what you have reported on your FBAR annual report. And the two had better match or you’re in trouble.
This committee is being assigned the task of how to comply with what Uncle Sam wants of Israel’s banks. You may be asking why should your corner bank even care about this American law? It’s because the law has teeth that can eat into your bank’s profits. Every bank, insurance company, financial manager, and retirement fund either has offices in the USA or at least, invests in US Treasuries and US stock markets. And if they don’t report even your smallest of shekel accounts to the IRS, those Israeli financial institutions will have something like 30% of their holdings withheld until compliance is complete. I’d call that incentive with a capital, “I.” The article relates that the Israeli financial institutions will be required to identify all American customers with accounts holding $50,000 or more, however, as far as I know, any and all US Persons’ accounts are required to be reported, no matter how small the holdings.
So, too, the committee is being asked to examine the “possibility of formulating a bilateral agreement with the US that would make it easier for Israeli financial institutions to comply.” This is not detailed in the article but I can tell you here what they are talking about. There is a six-nation agreement that is being finalized, whereas, the tax authorities of France, Germany, Spain, Italy, England, and the United States, will exchange the account information, alleviating the necessity of each local financial institution (bank, broker, etc.) to report to the IRS. If Israel does enter into such an agreement with the US Treasury, the Israel Tax Authority (Mas Hachnasah) will gather the data and pass it on to the IRS. And this will be a reciprocal agreement, part of which will be the IRS reporting to Mas Hachansah details about any Israeli’s financial holdings in the United States. So if you haven’t been reporting your dollar income on your Israeli tax report, contact your lawyer now, because, take my word for it, this is going to happen. We are entering the era where all the government tax authorities will know about all your income, no matter where it is in the world.
***CORRECTION*** I have done some additional research and read the FATCA portion of Public Law 111-147, passed by the 111th Congress on March 18, 2010 (H.R. 2847), called the ‘‘Hiring Incentives to Restore Employment Act’’. It does, indeed, exempt any account held by an individual from having to be reported by the FFI if the account contains less than $50,000. This individual must be a natural person. That is, a human being and not a corporate entity. Also watch out, because if one individual has several different accounts at the same financial institution, they count the aggregate of all the accounts. Not only that, if the FFI is part of an affiliated group, they look at these various affiliated FFI’s as a single FFI. The key here is how they are defining “affiliated.” There’s always an unclear portion of any new law, which will have to be further defined by legal decisions of the courts. Anybody care to volunteer to be the guinea pig?
Here is the wording of the exception pasted from the law:
‘‘(B) EXCEPTION FOR CERTAIN ACCOUNTS HELD BY INDIVIDUALS.—Unless the foreign financial institution elects to not have this subparagraph apply, such term shall not include any depository account maintained by such financial institution if—
‘‘(i) each holder of such account is a natural person, and
‘‘(ii) with respect to each holder of such account, the aggregate value of all depository accounts held (in whole or in part) by such holder and maintained by the same financial institution which maintains such account does not exceed $50,000.
To the extent provided by the Secretary, financial institutions which are members of the same expanded affiliated group shall be treated for purposes of clause (ii) as a single financial institution.