IRS Hunting for Americans (from

31 Aug

Published 02:59 29.06.11

IRS now hunting for American tax fugitives in Israel

By Ram Ozeri

The United States Internal Revenue Service is gearing up for a widespread campaign to hunt down federal income tax outlaws living outside the United States. Tens of thousands of them are estimated to be living in Israel. The feds will presumably require Israeli banks to report on all customers with U.S. citizenship, including those who also hold an Israeli passport.

U.S. tax law requires all American citizens, including those living abroad, to file annual income tax reports. According to a report submitted to Congress, more than seven million U.S. expatriates are obliged by law to file income tax returns, but IRS figures show only 7% of them filed returns for 2009. IRS figures puts the number of Americans living in Israel who must file returns at about 100,000. Darlene Hart of US Tax & Financial Services, a European accounting firm with offices in London, Geneva, Zurich and Tel Aviv, says that the duty to report to the IRS goes beyond those who hold U.S. citizenship.

The feds are here

Only 34% of those who are required to report are U.S. citizens, she explains. Anyone who holds a Green Card, who invests in the American market in one way or another, individuals who were born in the United States but who don’t hold a U.S. passport, and anyone with at least one American parent who has lived in the United States for more than five years – all these, and many more, must file with the IRS every year.

The obligation to report does not necessarily entail an obligation to pay:

Israel is one of many countries that has a tax treaty with the United States, providing partial or full income tax exemptions. Hart explains that people who pay income tax in Israel do not generally have to pay tax in the United States as well, with the exception of certain situations – such as for inheritance tax or other taxes that do not exist in Israel. Hart stressed, however, that anyone who is legally required to file an annual return must do so, even if they do not owe Washington a penny. The fine for failing to report is $10,000 per year for each bank account, Hart said, noting that the long arm of the IRS cannot always reach expats. The easiest way to track them down, she said, is through the banking system.

The Foreign Account Tax Compliance Act, signed into law in March 2010, requires all banks worldwide to tell the IRS the names,addresses and deposit balances of their American clients or face draconian sanctions such as the forfeiture of up to 30% of the bank’s assets in the United States. It is believed that IRS agents are already in Israel, examining the compliance of the country’s big bank’s with the new reporting rules. The law obliges overseas banks to ask their clients to supply the required information. If a client refuses, the bank is more likely to end its relationship with the customer than to risk getting in trouble with the IRS. The Banking Association of Israel has hired a major Washington law firm to advise it on the ramifications of FATCA, as the new law is known. The Bank of Israel is also studying the act’s implications for local banks.



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