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Tax experts listed the following groups that could face IRS scrutiny following the new agreement:
Americans who made aliyah to Israel, even at a young age.
Children of U.S. citizens who were born in Israel but received American citizenship based on their parents’ or grandparents’ citizenship.
Children of Israelis who were born in the United States and are therefore American citizens.
Americans who own real estate in Israel and have opened bank accounts for mortgage payments or for receiving rental checks.
American businessmen and investors who maintain ties with Israeli companies and keep bank accounts in Israel for cash flow.
Jews from the former Soviet Union who lived in Israel for a while before moving to America but maintained an Israeli bank account.
The law is already affecting many Iranian and Iraqi Jews who transferred funds out of their native countries and into accounts in Switzerland or England for safety while they later moved to the United States. Now, with most European countries already signed on to FATCA, these funds are also reportable.
Dave Wolf, an American tax lawyer now based in Jerusalem, said his office has seen an influx of American expats rushing to resolve their tax issues before their bank account information is revealed to the IRS.
“I have hundreds of clients, and I would say that 80% of them had no intention ever to cheat the IRS,” Wolf said. Of those, some had no idea they were required to file taxes. Others, mainly refugees from Arab countries or Holocaust survivors, had kept the accounts secret even from their families, viewing the money as an emergency resource in case they’re forced to flee again, he said.
As was the case for Ofer, many learned about these tax requirements only recently. One of Wolf’s clients is an Israeli who was born in the United States while his family was working for an Israeli organization. “The kid was born there, but has nothing to do with America. He has no American accent, he doesn’t care about the Yankees and he never lived there, but if he doesn’t comply, the bank will freeze his account,” Wolf said.
Another client is an American citizen who never lived in the United States but recently had to pay $1.5 million in back taxes and penalties to settle his issues with the IRS, according to Wolf.
But not all those impacted by the new tax agreement are innocent citizens unaware of their tax obligations.
Though not as popular a tax shelter as the Cayman Islands, Israel has been an attractive destination for American Jews seeking to hide funds or to evade taxes. Some had ties to Israel or visited it frequently, while others chose Israel as their tax haven, believing that the Jewish state would be reluctant to turn over a fellow Jew to the authorities in a foreign country.
In May of this year, a senior executive with the Los Angeles branch of Israel’s Mizrahi Tefahot Bank was indicted on charges that he helped customers open undisclosed accounts in Israel to avoid paying taxes. Another case, settled in a plea agreement, involved the American arm of Israel’s Bank Leumi.
Israeli media reported that at least $5 billion has been withdrawn from Israeli banks and transferred elsewhere since the United States began its increased scrutiny. But Wolf noted that while Israel may be among the first countries to cooperate with American tax authorities, FATCA will become a reality in most countries in coming years. Electronic information sharing will allow the IRS to know virtually about every bank account in the world held by an American. “It is the end of hiding money,” Wolf said. “This is no longer possible.”