It was late in the afternoon on June 30, and accountant Alan Deutsch was feverishly preparing income tax filings for clients.
“I got tons of calls over the last couple of months, culminating in the last two weeks,” said Deutsch, a US tax accountant who works with clients in Beit Shemesh, Jerusalem and Modi’in. “Lots of people are very concerned about it, so they started to comply. There’s a lot of new filers coming into the system.”
“It,” is FATCA, the Foreign Account Tax Compliance Act, enacted in 2010 by the US in order to counter tax evasion by Americans with foreign bank accounts.
Since 2007, the Internal Revenue Service has been aggressively going after foreign banks to find out what assets Americans are possibly hiding, and FATCA enables them to find out that information. Now Israeli banks also have to comply with the IRS, as of July 1, which means American citizens in Israel had to get their taxes in order, and June 30, was the deadline.
There are nine reasons for late tax filings listed on the FATCA site, said Deutsch, including if a bank is late in giving the necessary information or if a person’s tax professional initially thought that his or her client didn’t have to file.
But don’t count on any leniency from the IRS. According to Deutsch, there will be few extensions given.
“They’ve been lenient in the last few years, but they’ll only accept late filings after June 30 for reasonable terms,” he said.
What’s changed in the system is the increased IRS involvement in the income tax filings of US citizens living abroad, due to FATCA and FBAR — the Foreign Bank and Financial Account Report — created back in 1975, but making waves now.
FBAR looks at the bank accounts of US citizens living abroad, particularly those with more than $10,000 at any time. For American citizens in Israel, that means their US and Israeli bank accounts are open to investigation.
In fact, the $10,000 minimum includes shekel income as well, pointed out Deutsch, including various long-term pension and savings plans that are common among Israeli citizens.
“It includes everything,” said Deutsch. “And most people have that much money.”