CPAs say tax season could be tough on U.S. ex-pats in Israel

Americans living or holding bank accounts in Israel might want to batten down the hatches for the coming tax season. That's the forecast from a lot of tax accountants who do work for those individuals.

According to the experts, the odds that the tax returns, especially of those people filing for a child tax credit, will be audited by the Internal Revenue Service are greater than ever. One American accountant working in Israel says that he's seen more audits launched in the past two years than in the previous 30. Not surprisingly, he says the pressure created by the IRS audits is generating a lot of anxiety. 

Anyone who finds themselves squared off with the IRS is likely to experience similar tensions. Skilled legal assistance should be sought and enlisted to help get weather such storms.

In the matter of Israel, experts say the Foreign Account Tax Compliance Act, FATCA, is one reason why audits are being stepped up. But attorneys serving the U.S. expatriate community say another problem is that some in the community have engaged in fraudulent activity and that's tainted everyone else.

What reportedly brought U.S. tax filings from Israel into the scope of the IRS in the first place was the alleged misuse of the $1,000-per-child tax credit. Under U.S. law, if certain conditions are met, filers can claim the credit. If those who live outside the U.S. can show that they are entitled, they can also claim the credit.

Apparently, among the many legitimate claims for the credit filed by Americans living in Israel were some that were bogus. They reportedly were submitted by shady tax preparers on behalf of unsuspecting filers. Increased audits followed.

While lawyers and accountants representing clients in Israel say the initial trigger was the alleged child tax credit abuse, they caution that IRS focus on FATCA and Foreign Bank and Financial Accounts Reports could lead to even broader scrutiny going forward.

Source: The Jewish Daily Forward, "Americans in Israel Targeted by IRS for Tax Audits," Nazthan Guttman, March 3, 2014

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