The US took another step toward implementing measures that will require foreign financial institutions around the world, including Israel, to share information about account holders with American citizenship.

More than 77,000 foreign banks, investment funds and other financial institutions have agreed to share information about US account holders with the Internal Revenue Service as part of a crackdown on offshore tax evasion, the Treasury Department announced Monday.

In early May the Finance Ministry announced that it had reached the outlines of a deal with the US requiring Israeli financial institutions to 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 looming implementation of the deal has elicited particular concern from 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 list includes 515 Russian financial institutions. Russian banks had to apply directly to the IRS because the US broke off negotiations with the Russian government over an information-sharing agreement because of Russia’s actions in Ukraine.

Nearly 70 countries have agreed to share information from their banks as part of a US law that targets Americans hiding assets overseas. Participating countries include the world’s financial giants, as well as many places where Americans have traditionally hid assets, including Switzerland, the Cayman Islands and the Bahamas.

Starting in March 2015, these financial institutions have agreed to supply the IRS with names, account numbers and balances for accounts controlled by US taxpayers.

Under the law, foreign banks that don’t agree to share information with the IRS face steep penalties when doing business in the US. The law requires American banks to withhold 30 percent of certain payments to foreign banks that don’t participate in the program — a significant price for access to the world’s largest economy.

The 2010 law is known as FATCA, which stands for the Foreign Account Tax Compliance Act. It was designed to encourage — some say force — foreign financial institutions to share information about US account holders with the IRS, making it more difficult for Americans to use overseas accounts to evade US taxes.

“The strong international support for FATCA is clear, and this success will help us in our goal of stopping tax evasion and narrowing the tax gap,” said Robert Stack, deputy assistant treasury secretary for international tax affairs.

The US Department of the Treasury (photo credit: CC BY-SA Florian Hirzinger, Wikimedia Commons)

The US Department of the Treasury (photo credit: CC BY-SA Florian Hirzinger, Wikimedia Commons)

Under the law, US banks that fail to withhold the tax would be liable for it themselves, a powerful incentive to comply. US banks are scheduled to start withholding 30 percent of interest and dividend payments in July, though recent guidance from the Treasury Department gives US banks some leeway on timing as they gear up their systems.

The withholding applies to stocks and bonds, including US Treasurys. Some previously owned securities would be exempt from the withholding, but in general, previously owned stocks would not.

Private investors who use foreign financial institutions to facilitate trades also face the withholding penalty. Those private investors could later apply to the IRS for refunds, but the inconvenience would be enormous.

Treasury released the list of complying banks on Monday so American financial institutions will know it is OK to send them payments without withholding the tax. Treasury is expected to update the list next month, after another push to complete information-sharing agreements.

“I think having 77,000 on this first list is a pretty big success,” said Denise Hintzke of Deloitte Tax LLP. “It appears to me that people are taking it pretty seriously and intend to comply.”

Banks in many countries are prevented by local privacy laws from sharing account information with foreign governments. To get around these restrictions, the Treasury Department has been negotiating agreements in which foreign governments will collect the information from their banks and then share it with US authorities.

Russia was negotiating one of these agreements when the US broke off talks in March. Nevertheless, 515 Russian financial institutions applied to the IRS directly and have been accepted into the program. More could apply in the coming weeks.