State Comptroller: Rabbis Have Amassed Hundreds of Millions Without Paying Taxes

Report details failure of authorities to demand tax reports and payments, and asserts that one unnamed kabbalist has accrued assets of more than 1 billion shekels.

Eliyahu Hershkovitz

More than a decade ago, following an expose by Haaretz reporter Yossi Bar-Moha, the Tax Authority demanded that Rabbi Elazar Abuhatzeira – at the time one of the country’s most powerful and possibly wealthiest kabbalists – was ordered to pay back taxes of some 100 million shekels ($27 million) on donations he had received over the years. The rabbi, known popularly as the Baba Elazar, refused, saying they weren’t his personal funds but donated to build an educational center.

The two sides eventually reached an unusual compromise under which the Baba Elazar would be liable for 20 million shekels, just 3% of the funds he had been known to have accumulated. The compromise set an unfortunate precedent of treating the money accumulated by politically powerful rabbis with kid gloves. The settlement was exceptional not only in its paltry amount but in its noting that the rabbi did not recognize that he was liable for tax at all, and was making the payment as a “favor” through one of his followers. The agreement made it more difficult to collect taxes from other powerful rabbis. Abuhatzeira, who was estimated by TheMarker in 2011 to be worth 80 million shekels, was assassinated that year by a follower taking revenge over some bad marital advice the kabbalist had given him.

In the same year the Tax Authority reached its agreement with Baba Elazar, the State Prosecutors Office told it to establish norms for dealing with kabbalists’ tax liabilities and make them public. Eleven years later, this still has not happened, according to a state comptroller’s report released this week.

Money laundering suspicions

The Tax Authority has information that points to a suspicion of money laundering by 11 kabbalist rabbis and six Haredi rabbinical courts, but officials have failed to act on the information, according to the report released on Wednesday by State Comptroller Joseph Shapira.

“Most of these huge funds, accumulated by a few dozen kabbalist rabbis, are no secret. The Tax Authority has not determined clear policies yet with regard to these rabbis and the taxation of their revenues. It has not initiated a clarification of their legal status, even though the need to regulate such revenues arose 15 years ago,” wrote the comptroller, who devoted an entire chapter to the matter of his latest report.

“In addition, not enough was done to include rabbinical courts in the assessment targets covered by the Tax Authority. Even though these are registered as companies they were only partially taxed or not at all,” the report stated.

In a marginal note in the report, the comptroller estimates that one kabbalist alone – which the report does not name – has accumulated more than 1 billion shekels in assets.

The huge business enterprises that these rabbis and rabbinical courts operate make it imperative that their tax treatment be addressed as part of the Tax Authority’s role in creating a fair and equitable tax system, in which every person assessed pays his fair share and the government doesn’t lose revenues due it.

About the only action taken against the kabbalists and Hasidic courts came in 2009, according to the comptroller’s report, when the Tax Authority demanded that a random sample of 29 such rabbis file an annual tax report and provide a declaration of capital. Eight of those were assessed at the national tax assessment center, but payment arrangements were only made with four of them. Fourteen other cases that were submitted to regional tax assessment centers were never handled.

Nothing done

The State Comptroller’s Office approached the Money Laundering Prohibition Authority at the Ministry of Justice about information it has accumulated between 2012-2014 relating to the rabbis and courts. The authority had information that led it to suspect laundering had been done by the six courts and 11 rabbis. But nothing was done with this information because the Tax Authority decided that it was not responsible for the matter.

The first instance of shirking responsibility by the authority came when it refused to make its own determination about how kabbalists and others should be taxed, contending that the courts should interpret the law and decide whether the rabbis’ income should be regarded as gifts or payment for services rendered.

The second instance of evading responsibility occurred when the Tax Authority claimed that the Money Laundering Prohibition Authority was not providing it with real-time information of suspected tax evasion, although the Tax Authority said it was planning legislation to ensure it received the information in order to prevent tax evasion and money laundering.

As to the billion–shekel kabbalist, the Tax Authority also declines to name him, but one possible candidate is Rabbi Pinchas Abuhatzeira, the Baba Elazar’s son.

According to an investigation by the Israeli edition of Forbes magazine published two years ago, Pinchas Abuhatzeira is Israel’s wealthiest rabbi with estimated capital of 1.3 billion shekels. Other rich rabbis on the list, all of whom are presumably living tax–free, is Gerrer Rabbi Yaakov Arieh, with assets estimated at 350 million shekels, the admor of Belz Rabbi Yissachar Dov Rokeach with 180 million, and Rabbi Nir Ben Artzi, with 100 million.

The Forbes list also included rabbis better known to the secular public, including Rabbi Yaakov (“X-Ray”) Ifergan and Rabbi Yoshiyahu Pinto, whose assets are put at 90 million and 75 million shekels, respectively.

“There are rabbinical courts that have amassed millions,” one former Tax Authority officials told TheMarker. “Today you are permitted to give and receive donations, but the question is what is happening with these contributions – are they [rabbis] using them to live the high life? The point isn’t what this is being called – whether it is a ‘donation’ or not – but how it is used and if it is being used as [personal] income.”

He said the rabbinical courts are supposed to be keeping proper accounting records, but in fact they do not pay tax assessments. “Why is that when they sell an amulet they don’t have to give a receipt? Why is that different than selling menorahs in a store, for example?” asked the official, who requested not to be identified by name.

In response to the comptroller’s criticism, the Tax Authority said on Wednesday that the issue of determining whether money given to kabbalists should be treated as a gift or a fee for services is complicated, which is why it has turned the matter over to the courts.

“Regarding the concerns raised by the comptroller that information in the hands of the Money Laundering Prohibition Authority points to money laundering and tax evasion by the Hassidic courts, the law today bars the Tax Authority from getting information on a current basis from the Money Laundering Prohibition Authority,” it said. “Unfortunately legislation [to change that] has been held up in the Knesset for a long time.”