IRS Is Coming for American Tax Evaders in Israel

Investors Shift $5B as Deal Clears Way to New Scrutiny

Pay Up: A man holds a sign reminding Americans to file their taxes before the IRS deadline.
Getty Images
Pay Up: A man holds a sign reminding Americans to file their taxes before the IRS deadline.

By Nathan Guttman

Published May 09, 2014, issue of May 16, 2014.
  • Print
  • Share Share
  • Single Page

Israel may still be a safe haven for Jews around the world, but it is no longer their tax shelter.

Thanks to a new agreement signed on May 1, Israel will turn over to the U.S. Internal Revenue Service information on all American citizens holding accounts in Israeli banks. As a result, Americans trying to hide income and assets in Israeli financial institutions will now be exposed to the IRS.

This is certain to lead a significant number of Americans to be confronted with penalties and back payments for money deposited in their Israeli accounts.

But the accord, which was signed under the 2010 Foreign Account Tax Compliance Act, has also caused a scare among many Americans who had never thought of themselves as tax evaders. These include American Jews who own real estate in Israel, children of American citizens who had never even lived in America and Green Card holders who maintain accounts in Israel. Many of them are now in a frantic rush to comply with American laws they did not even know applied to them.

Ofer, an Israeli in his 30s whose American parents immigrated to Israel before he was born, had never paid attention to the fact that he holds American citizenship. It’s been years, he said, since his U.S. passport had been renewed. But now, said the resident of central Israel who, for fear of alerting the IRS, would only agree to be identified by his first name, he may have to pay significant fines to a country he has never lived in.

“This came out of the blue,” Ofer said. “I’ve been paying taxes in Israel all my life, and didn’t think I was doing anything wrong.”

At the advice of his tax accountant, Ofer sent a letter to the IRS, asking for lenience. But if rejected, he could face a hefty fine.

Israel was not given much of a choice about joining FATCA. Had it refused, Israeli banks would have been barred from doing business with financial institutions in the United States, effectively shutting down much of the banks’ activity. “The agreement,” said the Israel Tax Authority’s deputy supervisor for state revenue, Frieda Israel, “provides Israel the status of a country with a signed agreement with the United States. It will make it easier for the necessary financial institutions to provide the information on American accounts in Israel.”

FATCA does not target Israel specifically, and is part of a global effort by the United States to do away with tax havens that have allowed citizens to hide billions of dollars offshore. It is directed at the banks rather than the customers, and requires them, once an agreement is signed, to identify and hand over to the IRS all documentation and information of American account holders.

Twenty-eight countries have already signed FATCA agreements, and discussions are underway with another 75. Lack of compliance could lead not only to closing the doors for banks doing business with America, but also to huge fines, such as the $780 million paid by the Swiss bank UBS for concealing information about account holders from the U.S. government.

Under the new agreement, Israeli banks must now inquire whether customers opening new accounts are American citizens or permanent residents. They will also have to comb through existing accounts to identify Americans based on their previous declarations, birthplace or any other information the bank may hold. Once identified, the names and account information will be turned over to the IRS.

U.S. law requires citizens to file a yearly tax report regardless of their country of residence and regardless of taxes they’ve already paid in their host country. The first $96,600 in income earned abroad is generally excluded from taxation, and some countries have reciprocity agreements with the United States that enable American taxpayers to offset taxes they may have paid a foreign government against what they would otherwise owe Uncle Sam. But Americans still must file the appropriate yearly tax forms documenting they qualify for these exemptions. Americans are also obliged to report all overseas bank accounts that have a balance of more than $10,000.

FATCA’s reach is not limited to American citizens who have moved to Israel; it includes many who had had little to no contact with the United States.


The Jewish Daily Forward welcomes reader comments in order to promote thoughtful discussion on issues of importance to the Jewish community. In the interest of maintaining a civil forum, The Jewish Daily Forwardrequires that all commenters be appropriately respectful toward our writers, other commenters and the subjects of the articles. Vigorous debate and reasoned critique are welcome; name-calling and personal invective are not. While we generally do not seek to edit or actively moderate comments, our spam filter prevents most links and certain key words from being posted and The Jewish Daily Forward reserves the right to remove comments for any reason.





Find us on Facebook!
  • Wanted: Met Council CEO.
  • “Look, on the one hand, I understand him,” says Rivka Ben-Pazi, a niece of Elchanan Hameiri, the boy that Henk Zanoli saved. “He had a family tragedy.” But on the other hand, she said, “I think he was wrong.” What do you think?
  • How about a side of Hitler with your spaghetti?
  • Why "Be fruitful and multiply" isn't as simple as it seems:
  • William Schabas may be the least of Israel's problems.
  • You've heard of the #IceBucketChallenge, but Forward publisher Sam Norich has something better: a #SoupBucketChallenge (complete with matzo balls!) Jon Stewart, Sarah Silverman & David Remnick, you have 24 hours!
  • Did Hamas just take credit for kidnapping the three Israeli teens?
  • "We know what it means to be in the headlines. We know what it feels like when the world sits idly by and watches the news from the luxury of their living room couches. We know the pain of silence. We know the agony of inaction."
  • When YA romance becomes "Hasidsploitation":
  • "I am wrapping up the summer with a beach vacation with my non-Jewish in-laws. They’re good people and real leftists who try to live the values they preach. This was a quality I admired, until the latest war in Gaza. Now they are adamant that American Jews need to take more responsibility for the deaths in Gaza. They are educated people who understand the political complexity, but I don’t think they get the emotional complexity of being an American Jew who is capable of criticizing Israel but still feels a deep connection to it. How can I get this across to them?"
  • “'I made a new friend,' my son told his grandfather later that day. 'I don’t know her name, but she was very nice. We met on the bus.' Welcome to Israel."
  • A Jewish female sword swallower. It's as cool as it sounds (and looks)!
  • Why did David Menachem Gordon join the IDF? In his own words: "The Israel Defense Forces is an army that fights for her nation’s survival and the absence of its warriors equals destruction from numerous regional foes. America is not quite under the threat of total annihilation… Simply put, I felt I was needed more in Israel than in the United States."
  • Leonard Fein's most enduring legacy may be his rejection of dualism: the idea that Jews must choose between assertiveness and compassion, between tribalism and universalism. Steven M. Cohen remembers a great Jewish progressive:
  • BREAKING: Missing lone soldier David Menachem Gordon has been found dead in central Israel. The Ohio native was 21 years old.
  • from-cache

Would you like to receive updates about new stories?




















We will not share your e-mail address or other personal information.

Already subscribed? Manage your subscription.