Daily Israel Report

Does Your Israeli Bank Want You?

The U.S. government is cracking down on observance of an income reporting law that was basically ignored until now.
By Aaron Katsman
First Publish: 5/27/2010, 7:07 PM / Last Update: 5/27/2010, 6:56 PM

israel news photo

With spending out of control, the U.S. government has become desperate for revenue. Last year the U.S. government went after Swiss banks to basically force them to give up the names of the U.S. clients that have been holding investment accounts with them. When at first the banks refused, the U.S. said that they would revoke their U.S. banking licenses. As
Now Israel is in focus vis a vis this law.
to be expected, the Swiss banks capitulated, and made an agreement with the American authorities to hand over the names. So much for Swiss bank secrecy.

Well, surprise surprise: now Israel is in focus.

This need for revenue has started to impact Americans that have bank accounts and/or investment accounts in Israel. Many U.S. citizens who are Israeli bank customers have been told to either move their investment accounts or face the liquidation or freezing of their portfolios. In fact, last week Bank Hapoalim started liquidating these investment accounts. This means that an American with an investment account at a local bank may not be able to buy or sell stocks, or other securities, even if they are already held in his account.  It’s clear that the local banks, like their Swiss counterparts, do not want to lose  their U.S. banking licenses, and would rather purge these accounts than deal with them and jeopardize their lucrative U.S. businesses.

Background

Americans who hold securities outside of the U.S., while it is perfectly legal to do so, have to realize that it is presumed that they are doing so to avoid tax reporting.  The thinking goes: “Why else would they have an account outside the U.S.?” No one thnks that, well, maybe they actually live abroad in the foreign land.in which they have an account. 

Americans who have foreign accounts are required to file a Report of Foreign Bank and Financial Accounts (FABR) form.

Jo Anne Alderstein, an expert in Anti-Money Laundering, write on the Nefesh B’Nefesh website, “An FBAR is a Report of Foreign Bank and Financial Accounts  (Form TD F 90-22.1) which must be filed annually by a United States “person” who has an interest in, signature power, or other authority over one or more financial accounts in  a foreign country that have an aggregate value of more than $10,000 at any time in a calendar year.”  She says that U.S. “persons” are defined as: U.S. citizens, lawful permanent residents of the U.S. (“green card” holders), certain business entities. Financial accounts include: bank accounts (savings, checking, time deposits), mutual funds, brokerage accounts, investment accounts, and private pension accounts.

While this has been the law for a long time, it was simply on the books, but after talking to many tax advisors and accountants, it appears that the powers that be are starting to enforce this law, and citizens that are not in compliance could face hefty penalties.

What to Do?

If you are one of the lucky ones who received a letter from your bank politely asking you to close your account, you still have options. You should speak with an accountant or tax advisor that does U.S. taxes and find out if there are any outstanding reporting issues that you may face. Then you should speak to a financial advisor and look for an American- based brokerage firm and consider transferring your securities there. There is nothing illegal about living in Israel and owning securities. Just make sure that you are in full compliance with U.S. tax law.

(Aaron Katsman is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States.Email: aaron@lighthousecapital.co.il. )