U.S. amnesty window of opportunity
Published in the Jerusalem Post · 5 Jan 2017 · • By FELICIA M. SEATON and LEON HARRIS
Reprinted by Permission
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U.S. 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 U.S. 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 tax payer did not know they were legally obligated to file in the U.S.. With extensive media coverage, Israeli banks demanding proof of U.S. 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 tax payer to claim that they did not know of their obligation.
The obligation is quite clear: If one is a U.S. citizen, you need to file in the U.S. 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, taxpayers are approaching the point when they can no longer 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 U.S. 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 U.S. 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 U.S. 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 U.S. 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 U.S. citizen taxpayers owning accounts outside of the U.S. There are currently 113 countries that have signed IGAs. The U.S. is in negotiations with additional countries to exchange information.
In November, 2016 ,an email from the U.S. Embassy in Israel clarified that a U.S. 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, which enables the State Department to penalize people who owe a significant amount in U.S. taxes. The sanction prohibits entry into the U.S. for taxpayers who owe $50,000 or more (including interest and penalties) and revokes an existing passport.
U.S. persons may be thinking: “I couldn’t possibly owe more than $50,000 in U.S. 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 U.S. State Department can revoke your passport if you owe a significant amount in U.S. taxes. This is a new era. It requires a new mindset. Many are wondering whether any of this will still be valid under the new U.S. administration, as we do anticipate an extensive overhaul of the U.S. tax laws. However, the new administration’s platform does not mention any change in the IRS goal of seeking out U.S. 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 U.S. 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 U.S. citizen ship isn’t worth this? Take this window of opportunity.
What about Israel? If you have an unfulfilled Israeli tax reporting obligations, 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 M. Seaton is a lawyer licensed in the U.S. and registered as a foreign lawyer in Israel, located in Jerusalem, managing a worldwide practice. She practices U.S. estate planning and inheritance and U.S. income tax compliance.