New U.S. tax rates and policies may lead more Americans living in Israel to renounce their U.S. citizenship, according to financial experts.
Speaking at an international tax conference in Tel Aviv last week, Ifat Ginsburg of the law firm Ginsburg & Co. Advocates said that "we're going to see more and more people who are going to renounce their U.S. citizenship" to avoid expected tax hikes and closer scrutiny of their overseas accounts by the Internal Revenue Service.
"I also think the IRS will be much more sophisticated," Ginsburg said during a discussion of future tax trends. "When you come back to the U.S., you'll have to sign [at the airport] that you filed your U.S. tax returns."
Accountant Alan Deutsch told Haaretz in an interview that while there may be a slight increase in citizenship renunciations, "I don't think it's going to become an epidemic."
"There could be certain cases where people with a large net worth that don't really travel to the U.S. and don't feel that a U.S. passport is an asset to them might consider renunciation, but it's not an automatic thing," he said. "You may still have obligations to the IRS for several years afterward."
As for the airport checks, Deutsch said that there is a law requiring U.S. citizens to be up to date on their tax returns in order to renew their passports. "That could become more of an enforcement area," he said, but added: "I don't see them bothering people at airports, unless they have large tax liabilities that they haven't addressed."
During the conference, which was organized by Philip Stein & Associates and the ERM law firm, Stein warned about an increase in the number of IRS requests for compliance and audits.
"If [Americans] aren't filing, they're going to have to start filing because their local banks are going to reveal their identities to the IRS," said Stein, who immigrated to Israel from Chicago in 1979.
Under the Foreign Account Tax Compliance Act, or FATCA, which will take effect in 2014, foreign financial institutions must share certain information with the IRS about accounts held by U.S. taxpayers or face steep penalties. Three Israeli banks - Israel Discount Bank, Bank Leumi and Bank Hapoalim - already require American customers to provide portions of their U.S. tax returns in order to maintain an account.
Louis Tuchman, a partner in the tax department of Kaye Scholer LLP, based in New York, advised Americans to be proactive in the current financial climate. "It's always a good idea to defer income, but this is one of those rare situations when we're saying to people that you might want to consider accelerating income because the rates are going up," he said.