The federal government is widening its probe and prosecution of Americans with bank accounts in Israel who fail to report those accounts to the Internal Revenue Service, according to a Washington-based tax attorney.
“Just as occurred in Switzerland, it is now clear that the U.S. government is increasing its focus on Americans who are failing to report Israeli assets,” said Charles M. Ruchelman, an attorney at the law firm Caplin & Drysdale.
While a spokesperson for the IRS would not confirm that it had a particular focus on Israeli accounts, Ruchelman cited a recent California case as evidence of the purported crackdown.
On Feb. 14, an American citizen pled guilty to crimes involving failure to report the existence of two bank accounts in Israel to the IRS, according to court documents filed in the United States District Court for the Central District of California. The stipulated facts in the plea agreement indicate that the defendant, who was born in Israel, accessed his money through “back-to-back” loans, a set of transactions suggested by the Israeli bankers that allows holders of Israeli accounts to access their funds in the United States.
The defendant, Zvi Sperling, had more than $4 million in accounts in Israel that he had not reported to the IRS.
Sperling agreed to pay a significant financial penalty as well as to cooperate with government authorities in exchange for the government’s promise to not prosecute other members of his family.
“A lot of Jewish people have accounts in Israel, and they may be for completely innocuous reasons,” said Ruchelman, who advises many clients with foreign accounts. “They may have a house there, or relatives there. But they need to be aware of the tax implications.”
While lots of people have foreign accounts, Ruchelman said, there is a “disproportionate number of American Jews with accounts in Israel.”
Tax implications are triggered when the assets in those accounts exceed $10,000, requiring the filing of a Foreign Bank and Financial Account Report (FBAR), according to Ruchelman.
“A lot of people are unaware of the requirement,” he said. “Even a lot of accountants don’t know about it.”
While the federal government has been prosecuting people with foreign accounts in Switzerland, India and Hong Kong for several years, the government’s attention has now turned to Israel because of the large number of Americans with accounts there, Ruchelman said.
Recent reports by Reuters indicate that Bank Leumi, the largest commercial bank in the Jewish state, has been urging its American clients to disclose information about their accounts to government authorities.
“Israeli banks are going to cooperate [with U.S. authorities] because they want to maintain a good relationship with the United States,” Ruchelman said.
If one has a foreign account over $10,000 that has not been previously disclosed, one can avoid prosecution by entering into an IRS program to voluntarily disclose that account now, and pay a penalty. Instructions and forms for entering into that program can be found at http://www.irs.gov/uac/2012-Offshore-Voluntary-Disclosure-Program.
Because each case is unique, Ruchelman advises people with foreign accounts to seek the advice of an attorney or accountant knowledgeable in the field to ensure that all rights and obligations are considered, and to determine the correct course of action.
“The Jewish community should be aware of this,” he said, “and not stick their heads in the sand. They do have options, but they should move quickly.”
(Toby Tabachnick can be reached at firstname.lastname@example.org.)