Israelis with accounts at U.S. banks and other financial institutions earned $1.08 billion in income from interest, divided and capital gains in 2016, according to data provided by the IRS to the Israel Tax Authority.
Although incomplete and interim, the figure provides a first glimpse of the extent of Israeli financial assets in the United States. It was collected as part of the first official exchange of information between the two countries on the basis of the U.S. Foreign Account Tax Compliance Act, or FATCA.
The data was obtained by the Freedom of Information Movement in Israel and shows the first year of data collection under FATCA. The data obtained is very basic and doesn’t show the extent of Israeli holdings, only the income derived from them.
While the tax due on $1.08 billion works out to about 1 billion shekels ($280 million) before deductions and other breaks, tax officials are more interested in the source of the original capital and whether it was earned through money laundering or other illicit measures. Investigators are pouring through the data now looking for clues and have hired additional analysts and economists.
Under FATCA, Israeli and U.S. tax authorities are automatically sharing information with each other to crack down on international tax evasion.
Israel provides information collected from banks for all U.S. citizens resident in Israel as well as Israeli green card holders. The United States does the same for Israeli residents with U.S. accounts.
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The two sides transfer the information to each other every September. The Israel Tax Authority indicated that the 2017 data was still being processed and the data for 2018 hasn’t arrived. The ITA declined to provide any information on Israelis found to have not reported their income or face sanctions.
Israeli law permits Israelis to hold money in foreign accounts, but it is illegal not to report the income they earn from them. The information provided by the United States shows there are about 40,000 Israeli accounts in the U.S.
TheMarker reported in January 2018 that account holders included, at least as of 2015, Prime Minister Benjamin Netanyahu and his wife, Sara Netanyahu. Netanyahu earned $13,000 in dividend income in 2014 and 2015. Sara Netanyahu earned $500. The Prime Minister’s Office said at the time that he had properly reported all income.
Yoad Frenkel, an attorney and accountant who had worked for the Israel Tax Authority and is now a partner in the law firm Ziv Sharon & Co., said the 2016 figures suggest a big increase in Israelis’ earned income.
The only other benchmark figures Israel received from the IRA, in 2010, were for 2006-07. They showed considerably less income at a time when interest rates, and thus also interest income, were much higher.
The 2016 information from the IRS was poorly organized and difficult to work with, Israeli sources said. However, starting this year the U.S. will be sending the data using the Common Reporting Standard, or CRS, that’s been adopted by the Organization for Economic Cooperation and Development to make it easier for countries to share bank account data.
That should make it easier for tax investigator to pursue cases involving U.S. money.
Frenkel said that could be important to Israelis who have not reported their income.
Israel’s current tax amnesty is in effect until the end of the year, so those who voluntarily disclose income will only be required to pay back taxes and will not face criminal penalties.
The amnesty only applies to cases that have not yet been uncovered by the authorities and the ITA has hinted that its investigation of IRS data is still under way. That means, Frenkel said, that evaders who own up to the ITA before the end of December may be able escape a penalty.