FATCA Fallout: U.S. Sends Info About Israeli Accounts to Tax Man

YERUSHALAYIM -
(Abed Abed/Flash90)

The FATCA deal works both ways. While the motivation for Israel to sign the deal with the U.S. Treasury was to track down Americans who had unreported bank accounts in Israel and disclose that information to American authorities – or face the consequences, including a large fine – Israel has used the law to find Israelis with unreported bank accounts in the United States, with the IRS informing the Tax Authority about 35,000 such accounts.

FATCA, the Foreign Account Tax Compliance Act, went into effect January 1, with the aim of preventing money laundering and tax avoidance. Under the law, Israeli banks – as well as banks in one of 112 other countries that the legislation is aimed at – must forward to the U.S. information on accounts and financial assets owned by American citizens in those countries. Those that fail to comply are subject to a 30-percent tax on all transactions they conduct with American banks, as well as be subject to other sanctions, such as being banned from the SWIFT foreign banking exchange system.

The legislation was aimed especially at countries considered “tax havens” – countries where Americans could safely set up bank accounts without the IRS finding out. Israel was considered one of the prime targets of the law, as foreign residents could maintain tax-free bank accounts for as long as 20 years.

Israelis, of course, had to pay full tax on the interest and investment proceeds they earned, leading some to open bank accounts in other countries in order to avoid local taxes. According to information supplied by the U.S. Treasury under FATCA, there are 35,000 such Israelis with bank accounts in the U.S. The Tax Authority will now reach out to the Israelis named under FATCA and seek to determine how much they owe for the money they earned in their accounts.