Recently, I received an interesting phone call. The caller was a young Israeli woman. After apologizing for her “not great” English, she told me that she has lived in Israel all her life and has never visited the United States. Her mother was originally from New York but has lived in Israel for several decades and is married to an Israeli.
As I generally deal with the Anglo community and its finances, I wondered why she was calling me. She explained that she needed some urgent advice about U.S. finances and taxes, and a friend had given her my office number. She has U.S. citizenship through her mother. Indeed, when she was born, her parents thought that U.S. citizenship would be an asset and raced to get her a passport, but now she is finding her American citizenship to be a liability.
Wonder why?
The answer can be summed up in one word: FATCA.
FATCA stands for the Foreign Account Tax Compliance Act, and what this means is that any American citizen living anywhere in the world has to declare their bank accounts and income to the American government every year. This report must often be filed, even if taxes aren’t owed. If you don’t follow this tax compliance requirement, the penalties can be very stiff.
In the case of this young woman, she has never even visited the United States. English is not her first language and she feels very little connection with America. Yet because she has an American passport due to her mother’s birth nationality, she has reporting obligations to a country to which she feels no allegiance.
She’s not the only one.
For many U.S. expats (read “American olim to Israel”) the American taxation laws, which have become increasingly rigorous in recent years, are an ongoing nightmare. The forms are complicated, detail-oriented, and some fields are left open to your accountant’s interpretation (i.e., are mutual funds in a foreign pension fund where the owner cannot make buy/sell decisions considered a PFIC?).
For this reason, I recently got together with expert expat professionals, including tax experts Dave Wolf and Ron Zalben, and also with Marylouise Serrato and Anne Hornung-Soukup of the ACA (American Citizens Abroad) and published The Expatriate’s Guide to Handling Money and Taxes.
For more information on what your obligations are as an American expat regarding FATCA and other U.S.tax legislation, click here.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published March 16, 2015.