Overseas Taxes Series: Offshore Voluntary Disclosure Program and Israeli Banks

By Expat News

American expats residing abroad who failed to timely file US expatriate tax returns for several years have 3 options to become compliant. We discussed earlier the Offshore Voluntary Disclosure Program and Streamlined Program for Offshore Compliance. A growing number of American expats residing overseas might face an exposure to the OVDP. This is due to the fact that several banks including Israeli banks are under investigation of the Department of Justice.

Let’s review the situation with Americans expats who have accounts in these Israeli banks and who failed to file US expatriate tax returns. The purpose of this article is to understand how these American expats can face the Offshore Voluntary Disclosure Program or even be excluded from participating in the OVDP.

In September 2012 the Department of Justice started to review allegations of tax evasion conspiracy by the Swiss branches of Leumi and two other Israeli banks, Bank Hapoalim and Bank Mizrahi-Tefahot.

Leumi has offices in New York, California, Florida, and Illinois. This investigation has far-reaching consequences for US clients of these banks.

Per Robert S. Fink of Kostelanetz & Fink LLP “Leumi is negotiating with the Justice Department and that it has a tentative agreement to hand over the account information of U.S. persons, but is attempting to extract some promises from the government regarding the bank’s liability and the liability of bank employees”.

What does it mean for US customers?

  • First, Leumi sent a letter to its customers stating that it would assist its clients to gather the documents in the bank’s possession that are required by the OVDP.
  • Second, if Leumi reports the information about foreign account holders to the IRS, these US persons might be excluded from the offshore voluntary disclosure program per the FAQ 21 of the OVDP’s frequently asked question list.
  • Third, taxpayers who have accounts at these banks will need to rush to submit all documents under the OVDP program before the banks provide the information about account holders to the IRS.

The bottom line is that the IRS is expanding its reach outside of Switzerland. American expats who didn’t file US expatriate tax returns and/or who didn’t report foreign financial accounts, are encouraged to come forward.

American expats residing abroad who have questions about the FBARs, FATCA, streamlined program, past due tax returns should contact an expatriate tax professional that specializes in international tax services.