US amnesty window of opportunity

US persons have a rare window of opportunity. It is important to take advantage of this window. That window provides us the ability to bring families up to date with US tax and related filings (FBARs, etc.), either without penalties or with relatively minimal penalties. It may also be a get-out-of-jail-free card because there may be no criminal charges either.

Did you know?

The premise behind this opportunity, however, is that the taxpayer did not know they were legally obligated to file in the US. With extensive media coverage, Israeli banks demanding proof of US tax filings and professionals such as lawyers and accountants advising their clients that they are legally obligated to file, it is becoming increasingly difficult for a taxpayer to claim that they did not know of their obligation.

The obligation is quite clear: If one is a US citizen, you need to file in the US if you reach specified thresholds, and there are a vast number of professionals throughout Israel and the world who will help a taxpayer know whether you reach such thresholds, often free of charge. Of course, the Internet also helps a taxpayer with this. Therefore, who knows whether a taxpayer can truly claim today that they did not know they were required by law to file.

In 2016, Caroline Ciraolo, the acting assistant attorney general, made comments at a tax conference in the US clearly stating that this window of opportunity is in fact, narrowing, if not closing: “After three very well-publicized voluntary disclosure programs, nearly 200 criminal prosecutions, ongoing criminal investigations and the increasing assessment and enforcement of substantial civil penalties for failure to report foreign financial accounts, a taxpayer’s claims of ignorance or lack of willfulness in failing to comply with disclosure and reporting obligations are, quite simply, neither credible nor well received.”

There has been no indication yet that the US government intends to close the Streamlined Procedure, which is the program described above. However, from these comments, it appears that filings will be more closely scrutinized.

FATCA: In addition, in September, Israeli media publicized Knesset committees’ decisions to implement provisions of the Intergovernmental Agreement (IGA) between the US and Israel by the end of 2016.

This agreement calls for Israeli financial institutions to collect information regarding their customers, particularly signed IRS forms, to establish clearly whether a customer is a US citizen or green-card holder (if you held a green card that expired, you may have a tax obligation as well). Israeli financial institutions will then transfer this information to the Israel Tax Authority (ITA), which will transfer this information to the IRS.

Israel is not the only country to cooperate with the IRS and provide it with information regarding US citizen taxpayers owning accounts outside of the US; there are currently 113 countries that have signed IGAs. The US is in negotiations with additional countries to exchange information.

Passport problems:

In November, an email from the US Embassy in Israel clarified that a US citizen will be denied a passport if the applicant fails to provide their Social Security number.

This new demand is a result of a new law passed in December 2015 that enables the State Department to penalize people who owe a significant amount in US taxes. The sanction prohibits entry into the US for taxpayers who owe $50,000 or more (including interest and penalties) and revokes an existing passport.

US persons may be thinking: “I couldn’t possibly owe more than $50,000 in US taxes. I pay Israeli taxes. There’s a credit.” But penalties can easily bring you up over $50,000 because some penalties are $30,000 per year per form not filed.

Yes, the US State Department can revoke your passport if you owe a significant amount in US taxes. This is a new era. It requires a new mind-set. Many are wondering whether any of this will still be valid under the new US administration, as we do anticipate an extensive overhaul of the US tax laws. However, President-elect Trump’s platform does not mention any change in the IRS goal of seeking out US taxpayers who are not filing or are not fully filing their returns, FBARs, etc. At this time, we do not foresee any modification of the US compliance and disclosure programs.

Get started: As mentioned, there is a window of opportunity – before Israel exchanges your information with the IRS and before the IRS assesses penalties in amounts easily surpassing the $50,000 arbitrary amount the law set. Now is the time to come clean – or perhaps to decide US citizenship isn’t worth this? Take this window of opportunity.

What about Israel? If you have an unfulfilled Israeli tax-reporting obligation, take separate Israeli advice; the Israeli tax-amnesty program ended at the end of 2016 for all Israeli taxpayers except diamond dealers. But the ITA is still in the business of collecting Israeli taxes.

As always, consult experienced tax advisers in each country at an early stage in specific cases.

felicia@feliciaseaton.com leon@hcat.co

Felicia M. Seaton is a lawyer licensed in the US and registered as a foreign lawyer in Israel, located in Jerusalem, managing a worldwide practice. She practices US estate planning and inheritance and US income-tax compliance.

Leon Harris is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.