IRS eyes U.S. citizens’ bank accounts in Israel


Do you have a bank account in Israel?

If so, let’s hope you filed the correct forms. Otherwise, you could be in for a criminal investigation and some hefty fines.

That’s because early this year, the Internal Revenue Service announced that it was cracking down on folks not voluntarily disclosing their income and funds in Israeli accounts to the U.S. government agency.

In February, court filings revealed that an American citizen pled guilty to crimes involving failures to report the existence of two bank accounts maintained in the Holy Land to the IRS. As part of a plea agreement, the defendant agreed to cooperate with government authorities and to pay a significant financial penalty.

“It’s important to note,” said Charles M. Ruchelman, a member of the Washington, D.C. law firm Caplin & Drysdale, “just as it 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.”

Previously, the IRS had focused on accounts in the Caribbean, Switzerland and India. Now, said Ruchelman, the IRS is working closely with Israeli banks and bankers and is ready to investigate and prosecute those who fail to report their funds and accounts, and those who enable this to happen.


For whom is the IRS looking?

United States citizens who have an interest in, or signature or other authority over, a financial account in Israel with assets in excess of $10,000. Ruchelman said people with these accounts are required to disclose the existence of such accounts on Schedule B, Part III of their individual income tax returns. Additionally, U.S. citizens and residents must file a Report of Foreign Bank and Financial Reports (FBAR) with the U.S. Treasury disclosing any financial account in Israel with assets in excess of $10,000. That form is due June 28, 2013.

If they don’t, according to a statement by the Department of Justice: “A deliberate failure to report, can result in a penalty of up to 50 percent of the amount in the account at the time of the violation.”


Why Israel?

Ruchelman said because the U.S. and Israel have close relations and “thousands and thousands of Americans have accounts in Israel. … This is very much on the [IRS’] radar, and it will affect the Jewish community.”

Ruchelman explained that the IRS started focusing on offshore accounts in 2008 or 2009, when a whistleblower who worked with one of the large foreign banks in Switzerland informed the government that Swiss banks were not only allowing Americans to open up accounts but enabling Americans not to report the funds therein.

“Switzerland prided itself on bank secrecy,” said Ruchelman.

This initial investigation led to the criminal prosecution of one Swiss bank, Weglin & Co., and numerous taxpayers, bankers and other professionals.

The IRS leveraged this highly publicized criminal enforcement focus by encouraging noncompliant taxpayers to participate in its longstanding Voluntary Disclosure program.  The 2009, 2011 and 2012 programs provided taxpayers who came forward before the IRS learned of their accounts with both certainty regarding the financial penalties they would incur and assurances that they would not be referred for prosecution. According to a recent GAO study, these programs generated approximately 38,000 disclosures and well over $5 billion in taxes, interest and penalties.

Caplin & Drysdale handled hundreds of these cases.

“The idea is: You come into us before we [the IRS] find you, and we will not prosecute you criminally and we will not impose the harsh penalty of 50 percent per year of nondisclosure, we’ll only impose 27-and-a-half percent for one year,” explained Ruchelman.

For the Jewish community, Ruchelman said, having a foreign bank account is not foreign. Many Jews who were living in Germany just before or during the Holocaust caught wind of what was happening on the ground and funneled money outside the area. If they escaped the Nazis and started a new life in the States, they left those accounts abroad as a safety net, just in case.

But America’s system, he explained, only works if citizens properly self-report.

“If people aren’t self-reporting, the system is breaking down,” said Ruchelman. “It is a lot of assets that have been untaxed over the years.”

Dr. Michael Elman of Glen Burnie, has an account in Israel — as well as real estate. He said he’s been reporting on that account for the last 15 years. For him, because he doesn’t make money in Israel, he only has to report the existence of the account. It’s one tax form.

“For me, it is pretty simple,” he said.

Dr. Elman noted that he knows many others with accounts in the Jewish state and the people he knows report properly, but he can see why the IRS would be upset if one was refraining from doing so. Nonetheless, he said, “I happen to think that in either country we are overtaxed. Is that fair? No.”

Still, he’ll keep reporting.

Said Ruchelman: “If you do get caught, you are going to get hit pretty hard.”

Maayan Jaffe is managing editor of the Baltimore Jewish Times, WJW’s sister publication.

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