The Finance Ministry announced Thursday that it has agreed with the US Treasury Department on the outlines of a deal to implement provisions of the the Foreign Account Tax Compliance Act, which will require Israeli financial institutions to report American citizens who hold accounts in Israel, including dual citizens.

Frida Israeli, the director of Israel’s State Revenue Department, who led the negotiations, said that the agreement has the effect of a signed final deal.

While the complete terms of the agreement will not be published until after the official signing, the Finance Ministry disclosed in a release that as part of the deal Israeli financial institutions must sign an agreement committing to check for relevant accounts and report the information to the US once a year, along with information on account holders who refuse to comply and the value of their accounts.

“The agreements reached with the US Treasury Department will make it easier for the financial institutions required to do so to report information on the accounts of American citizens in Israel.” Israeli added. “In addition, it will also avoid the imposition of sanctions on financial institutions that were unable to comply with FATCA, without agreements with the Finance Ministry.”

Director of State Revenue Department Frida Israeli (photo credit: Ministry of Finance)

Director of State Revenue Department Frida Israeli (photo credit: Ministry of Finance)

In cases of institutions that fail to comply with the new regulations, the US Treasury Department will withhold 30 percent of any financial transfer originating in the US.

The agreement also applies to US Green Card holders and residents, as well as legal entities in which American citizens have substantial holdings.

However, the terms of the agreement also grant some exemptions, such as reporting accounts that have a low risk of being used for tax evasion.

For financial institutions around the world that have reached an agreement with the US — 28 so far — FATCA reporting requirements officially kick in on July 1 of this year, and the Bank of Israel handed down a directive to Israeli banks to make preparations to ensure that the reporting goes smoothly, including ceasing to serve account holders who refuse to sign documents allowing the bank to report their income to the IRS.

The agreement is of particular concern to dual citizenship holders who have either failed to file tax returns or have not reported their income tax correctly. IRS audits have been on the rise in recent years, and with information from the banks at their disposal, IRS agents will have a much easier time catching such people.

The stricter regulations have prompted a growing number of US citizens around the world, including in Israel, to renounce their citizenship.