As of January 1st, all Israeli banks began reporting to the U.S. Treasury on the finances of Israeli citizens who are U.S. citizens or residents, married to such, work for a U.S. entity, or otherwise come to the attention of American authorities. The reporting is part of the information exchange component of FATCA, the Foreign Account Tax Compliance Act. Israel is one of 113 countries that the legislation is aimed at.
Of great concern to individuals who run loan organizations – gemachs – is what their status will be. Many such gemachs are not registered as charities, which means that Israeli banks are supposed to report on their activities – a requirement gemach managers fear will scare off donors, whose names and social security numbers may be included in the reports. The Finance Ministry’s response, according to a report in Globes: Organizations that have assets of up to $50 million and whose transactions are limited to $50,000 per individual contribution will be exempt from having details on their accounts reported to U.S. authorities. Gemachs with a larger volume or level of donations are welcome to register as official charities and apply for a reporting exemption based on that status.
The aim of FATCA is to prevent money laundering and tax avoidance. Israeli financial institutions, like those around the world, are required to report on the accounts of individuals and families who are American citizens or residents. Failure to do so will subject them to a 30 percent tax on all transactions they conduct with American banks, as well as subject them to other sanctions, such as being banned from the SWIFT foreign banking exchange system.
Gemachs – free-loan funds that provide large levels of assistance to many Israelis – accept donations from people around the world, including Americans. As a result, the gemachs are expected to report on those donations – providing the Treasury Department with information on who gave how much money.
Gemach managers who run funds that are not registered charities have been concerned that this requirement will discourage individuals from donating. Many of the gemachs are not registered as not-for-profit organizations with American authorities, so American donors do not get tax deductions for their donations. If those organizations are not charities, banks would report on their activity as they would on any other account subject to FATCA – and the Finance Ministry’s decision ensures that these smaller gemachs will not meet that fate.
Instrumental in securing the status of gemachs was United Torah Judaism MK Rabbi Moshe Gafni, chairman of the Knesset Finance Committee, Globes said. FATCA in general, said MK Rabbi Gafni, “is a very problematic law. It would have been better to insist on some changes in the original agreement with the United States. We are two different countries, and not everything that is applicable over there is applicable over here. The activities of gemachim, for example, which are not charities but do much public good, should have been included in the agreement. I am happy we were able to change at least some of the more onerous provisions for the good of Israeli citizens.”