Israel’s highest court has temporarily blocked the government from transferring the financial information of every American citizen to the U.S. Treasury in accordance with FATCA regulations, pending a September 12 hearing contending the regulation is unfair.
The Foreign Account Tax Compliance Act (FATCA) requires American taxpayers to report to the U.S. Treasury their financial information, including their bank information, if they have foreign accounts overseas. Foreign banks are also required to report information about the accounts of their American clients to the United States Treasury if the total balance equals or exceeds $50,000.
Likewise, the United States has Tax Information Exchange Agreement (TIEA) with various countries, including Israel, to ensure foreign banks report that information to the U.S. Treasury, that is required under FATCA. Dual U.S. citizens holding $10,000 or more in their accounts must report those assets by filing FBAR report.
This financial policing has made many banks and brokerage firms in Israel somewhat reluctant to open accounts with American citizens, according to an article by Kenneth H. Ryesky posted on September 4th on the American Thinker website. Ryesky is an attorney who formerly worked for the IRS and who now is a senior advisor with the U.S. desk at Ernst & Young in Tel Aviv.
He writes that thousands of Israelis who never had any intention of coming under the regulations of the United States have suddenly found themselves affected by these laws, to their detriment. It has come as an unpleasant shock and has caused major disruptions to their lives in some cases.
Due to aliyah and the subsequent descendants through the generations, numerous Israelis hold dual U.S. citizenship, thus becoming “accidental Americans.” (The same holds true in the United States with Israeli citizenship as well, of course.) Those who have tried to renounce their citizenship have also found that process is not as simple as it seems, because they are faced with an “expatriation tax” — a case of “damned if you do, damned if you don’t.”
Ryesky writes that Israel is now giving “serious consideration” to the interest of those and other dual citizens: the Supreme Court has enjoined the state to cease and desist in its planned transfer of FATCA information to the IRS pending a September 12, 2016 hearing.
The action was brought before the Supreme Court by “Republicans Overseas Israel.” On August 8, the PAC filed an amended petition with the High Court of Justice against the new FATCA law adopted by the Knesset on July 12, according to a statement by ROI.
In accordance with the law, the Israeli Tax Authority would have begun the transfer of all personal and private financial information of U.S. citizens and residents to the IRS, but the Supreme Court issued an interim order preventing the state from transferring the information, which would have begun on September 1.
The September 12 hearing is intended to determine the next step.