U.S Citizens Living Abroad

Whether you were born in the United States or were given U.S citizenship for any other reason, you must report your income and pay taxes to the U.S authorities, even if you have never lived or even visited there.
Where does it say so?
Let us introduce you to the IRC.
The IRC (the U.S Internal Revenue Code) is a compilation of directives regarding taxation in the U.S. The Code is legislated by the United States Congress and is updated every year.
Despite being detailed and in-depth, the Code itself is complex, convoluted and requires the assistance of skilled and experienced professionals.

Is only a U.S citizen liable to pay taxes?

The Code states that every U.S citizen shall be taxed according to his citizenship and not his place of residence, as opposed to the method in Israel and in many other countries.
This means that all U.S citizens, in any place in the world, are required to file U.S taxes and report their world-wide income above a certain threshold, despite the fact that this income has no connection whatsoever to the U.S, and even if they do not live in, or have never even been to the United States!
However, both the IRC and the Israel-U.S Tax Treaty offer relief by way of tax credits.
The IRC states that an Israeli citizen living in Israel with a U.S citizenship, must file a tax return in the U.S every year, detailing his world-wide income.
Failure to file a tax return is a criminal offense in the U.S and all that this entails, and leads to severe penalties and cumultive interest on arrears.
Green card holders and even people with certain U.S visas are subject to U.S tax laws, and in this respect they are just as liable as U.S citizens.

Tax Return with FBAR Form

Together with their tax returns, all U.S citizens with foreign financial assets that exceed $10,000 in a tax year are required to file a form called FBAR (Foreign Bank and Financial Accounts).
This form details the citizen’s financial assets held in non-U.S financial institutions, such as: banks, pension funds, keren hishtalmut, etc.
Failure to file an FBAR form incurs an automatic $10,000 penalty for every year of failure to report.
This is a huge sum making it clear that this form must be filed every year.

The Israeli Tax Authority in Service of the IRS

Together with their tax returns, all U.S citizens with foreign financial assets that exceed $10,000 in a tax year are required to file a form called FBAR (Foreign Bank and Financial Accounts).
This form details the citizen’s financial assets held in non-U.S financial institutions, such as: banks, pension funds, keren hishtalmut, etc.
Failure to file an FBAR form incurs an automatic $10,000 penalty for every year of failure to report.
This is a huge sum making it clear that this form must be filed every year.
The Israeli Tax Authority in Service of the IRS
In 2010, the U.S Congress legislated the FATCA (Foreign Account Tax Compliance Act), under which the U.S requires all non-U.S. foreign financial institutions (FFIs) to report the financial assets and accounts held by U.S citizens. The purpose of the Act is to provide the U.S tax authorities additional leverage to pressure U.S citizens into reporting their world-wide income and non-U.S financial assets.
In 2016, Israel and the U.S signed an agreeemnt regarding the mutual exchange of information between the two countries’ banks and financial institutions.
Accordingly, Israel enacted the FATCA Law in 2017, according to which the Israeli Tax Authority will receive information on the Israeli financial assets of U.S citizens, and pass on the information to the IRS.
Israeli banks now ask their customers whether they are U.S citizens or not, and they must sign a W-9 or W-8BEN form.

The Program That Will Save You Severe Penalties and a Criminal Record

Approximately 300,000 U.S citizens live in Israel on a permanent basis, most of which are required to file tax returns and FBAR forms every year, however many of these people are hardly aware of their obligation to file these forms.
The U.S legislator realized this was the case in Israel as in many other countries around the world, therefore the IRS (Internal Revenue Service) offered U.S citizens living offshore who failed to file taxes over the years unknowingly and in good faith, to catch up on their filings through the 2012 Offshore Voluntary Disclosure Program.

In 2014 this program was upgraded and led a great many U.S citizens in Israel and the whole world to use the opportunity to get current with their tax returns, therefore avoiding exposure to criminal prosecution in the U.S and heavy fines and penalties.

Last call to file taxes without penalties

It is important to note that the IRS has began to signal that since several years have passed since the voluntary disclosure program was launched, many U.S citizens around the world have now been exposed to it and made use of it, and as a result, it is assumed that those who failed to take advantage of the program so far will never do so.
This is a “strong hint” that the window to voluntarily disclosing your taxes is about to close.
Therefore we recommend anyone required to file who has yet to take advantage of the program to do so as soon as possible, subject to receiving counsel that he is eligible to make use of and participate in the program

Aharonof simplifies your tax filings

Our firm specializes in advising our clients and filing their U.S tax returns including their annual FBAR forms, and espcially in U.S Voluntary Disclosure catch-up filings. Our advantage and added value is our ability to provide our clients with comprehensive, 360° services concerning the U.S Tax Authorities as well as the Israeli Tax Authorities, whether the client has local representation or not.
As a result, we save our clients the need to run around between two separate firms and two different countries, providing a “one-stop-shop” that handles all their needs.

For further details, please contact our offices and we will be happy to assist you.

  • This article uses the masculine form, but is of course addressed to all genders equally and without difference.
  • The above is not intended to convey or constitute tax advice or an opinion on any matter.
  • The above should not be applied in any manner to evade or defeat any penalty that may be imposed by the IRS or any other legal authority in the U.S or the payment thereof.

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