The Finance Ministry of Israel announced on Thursday that it will go forward with a deal with the U.S. Treasury Department to enforce the Foreign Account Tax Compliance Act. This means financial institutions must report American citizens, including dual citizens, who hold bank accounts in the country.
The complete terms of the agreement won’t be released until they’ve been officially signed, by the director of Israel’s State Revenue Department says that this agreement is as good as a final signature. The Finance Ministry agreed that it will check for and report any accounts to the United States once a year. It must also report Americans who refuse to report their accounts and will share the value of those accounts.
So far 28 financial institutions have agreed to comply with the Foreign Account Tax Compliance Act and regulations will begin as of July 1 of this year. In preparation for this, Israeli banks have been asked to have account holders sign documents allowing their information to be reported to the IRS. Any account holders who refuse to sign the document will no longer be served by the banks.
Should any financial institution fail to comply with the regulations, the U.S. Treasury will hold 30 percent of financial transfers with origins in the United States.
The 2010 Foreign Account Tax Compliance Act was designed to help counter tax evasion. Even though they are living in another country and may not know about the law, anyone with dual citizenship must report their income to the IRS with a 1040 tax form. Even if they aren’t required to pay additional taxes—those who make less than $97,600 don’t need to—filing the form is still required.
If the form isn’t filed, is filed incorrectly or if they failed to file the Foreign Bank Account Report form that is required with the 1040, penalties can follow. The Jerusalem Post reports that the IRS can issue fines for those in violation up to 50 percent of the maximum balance of the account per year of the violation.
By reporting on these bank accounts, Israel will allow the IRS to gain insight as to whether failure to file is the result of a simple accident or is an attempt to evade taxes.
Stricter regulations have prompted many with dual citizenships in other countries to renounce their United States citizenship, according to the Times of Israel.
The agreement also opens the possibility that the United States would similarly report bank information of Israelis living in America.