On August 8, 2016, the Republicans Overseas Israel (“ROI”) brought an action in the Supreme Court of Israel against the implementation of the Tax Information Exchange Agreement (“TIEA”) between the United States and Israel that was adopted by the Knesset on July 12, 2016. Pursuant to this TIEA, the Israeli Tax Authority was to transfer all personal and private financial information of United States citizens and residents to the IRS on September 1, 2016 in accordance with United States regulations under the Foreign Account Tax Compliance Act (“FATCA”).
FATCA was enacted in 2010 by United States Congress and requires United States taxpayers to report foreign accounts overseas to the IRS. To ensure compliance, the United States has entered into TIEAs with various countries, including Israel, in which foreign financial institutions (“FFIs”) are required to routinely report to the IRS financial information related to accounts with a balance exceeding $50,000 that are held by United States taxpayers, or by foreign entities in which United States taxpayers hold a substantial ownership interest.
These financial policing requirements under FATCA would impact numerous Israelis who hold dual United States citizenship. Following the presentation of evidence related to IRS data security deficiencies and the probability of resulting identity theft subsequent to the remittance of financial information required under FATCA, Israel is giving serious consideration to the protection of its dual citizens before proceeding with the implementation of the TIEA.
Thus in response to the action brought by ROI, the Israeli Supreme Court has enjoined the government of Israel to temporarily cease and desist in its planned transfer of FATCA information to the IRS pending an emergency hearing that is scheduled to take place on September 12, 2016.
- Barry Engel and Jacqueline Fox