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Tax Issues For U.S. Citizens

Foreign Accounts Tax Compliance Act (FATCA)

FATCA is an Intergovernmental Agreement (IGA) that the U.S. Department of Justice has signed with more than 120 partner countries. The purpose of the IGA is to provide the U.S. with knowledge about the financial income and account balances of its citizens around the world.In essence, these agreements create a two-way transfer of information between the foreign country and the U.S. and from the U.S. to the partner country.In effect, the U.S. could demand income tax returns from delinquent taxpayers or non-filers based upon information received from a partner country since the U.S. taxes the worldwide income of its citizens.FATCA requires filing IRS Form 8938 under certain circumstances primarily when there are large financial balances (see below).

Revocation of U.S. Passports

The U.S. Highway Funding legislation calls for potential revocation or denial of U.S. passports for U.S. taxpayers with an outstanding balance of over $52,000 to the IRS. Tax balances due to any State are not part of this legislation. The IRS must notify the taxpayer of this proceeding prior to facilitating a revocation of any U.S. passport. If payment arrangements have been made with the IRS, the taxpayer's passport would still be considered valid and will generally not be revoked. In addition, there have been reported instances where taxpayers have been stopped and interrogated at Passport Control upon entry to the U.S., regarding their balances due to the IRS.

Exchange of Information between U.S. and Israel

Under the Intergovernmental Agreement (IGA) signed between Israel and the United States, an exchange of tax information between the two countries has been in effect since 2016. Israeli banks are now required to issue FORM 1099 to its customers who are U.S. citizens and also transmit these forms directly to the IRS. Reciprocally, since 2017, Israel has the right to receive U.S. tax information on its citizens directly from the U.S.Israel has an Amnesty Program for Israeli citizens who have not reported their income earned outside of Israel.

Form W-9

Israeli banks, as well as some other foreign financial institutions, are requiring customers to sign a U.S. Form W-9 (or Form W8-BEN for non U.S. citizens) in order to open a new account or continue banking or investing with the financial institution. In many cases, your Israeli bank may require a declaration that your last 3 years of U.S. income tax returns and FBARs have been duly filed.Not submitting the signed form can result in your Israeli bank freezing your Israeli account(s). Please note that if your bank has not requested you to sign a W-9, you are still obligated to report your non-U.S. income and assets to the IRS and the U.S. Treasury.

IRS Streamlined Procedures for Non-Compliant U.S. Taxpayers Living Abroad

In recognition that some U.S. citizens living abroad have failed to file annual U.S. Federal income tax returns and foreign bank account reports (FBARs), the IRS has a streamlined procedure to allow taxpayers to re-enter the IRS tax filing system and then be considered in "good standing". Many factors and requirements apply, but primarily this procedure is available for U.S. taxpayers that have resided outside the U.S. since January 1, 2009 and have not filed U.S. income tax returns for at least 3 years. Among the strict requirements for being accepted under the IRS streamlined process are: a) filing three years of U.S. income tax returns, b) filing six years of FBARs, c) not spending more than 35 days in the U.S. in one of the last 3 years, d) writing a detailed explanation under penalties of perjury, delineating your non-willfulness and delinquency, and attaching it to your filed tax returns. The IRS will expedite the review process and may not assess penalties for taxpayers filing under this procedure; however, interest on overdue balances will be assessed. The Offshore Voluntary Disclosure Program ("OVDI") has been terminated by the IRS as of 2018.

KEEPING PERSONAL INFORMATION SAFE

There are many articles you can research on the web on the topic of safeguarding your personal information.

Here are some tips:

• The IRS never calls or emails a taxpayer. Do not respond to any IRS email requests.

• Do not disclose your Social Security number or birthdate on the phone unless you initiate the call and it is necessary.

• Do not send credit card information by email.

• Have an updated firewall and anti-virus protection installed on all computers.

• Safeguard your Social Security number, and shred all notices stating Social Security numbers before disposing of them.

• When writing checks during the year, be sure to use 2020 (i.e. 3/14/2020). If you only write 3/14/20 it could be changed to 2019 or any other year beginning with 20. 

 

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Monday, 21 September 2020

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