Reasonable cause and your Israeli unreported bank account

Shiran Madar CPA (Isr.) Enrolled Agent (US )

On September 12, 2016 Israel's Supreme Court ruled that Israeli financial institu-tions can indeed fulfill the requirements of FATCA .

Following the implementation of FATCA Israeli banks are required to forward the IRS information on accounts and financial assets owned by Israeli-American citizens and in light of the recent ruling, the possibility of IRS penalties with regards to the information disclosed increases.

IRS penalties can be abated and it is usually in the taxpayer’s best interest to contest them, if there is a reasonable cause for the noncompliance.

In general, relief from IRS penalties falls in to four categories; reasonable cause, statutory exceptions, administrative waivers and correction of IRS error.

In our opinion the dominating element in contesting an IRS penalty is by far the reasonable cause factor.

A relief from an IRS penalty due to reasonable cause will be generally granted in cases where the taxpayer exercised ordinary business care and prudence in determining his or her tax obligations but nevertheless failed to comply with those obligations.

Reasonable cause can among other things be: Fire, Casualty, Natural Disaster, Death, Serious Illness, or Unavoidable Absence. In addition, if the taxpayer shows that he usually conduct his tax matters in a well-organized, prudent manner and that he acted reasonably and in good faith he generally will be granted relief from an IRS penalty.

The IRS even uses an automated system for determining whether the taxpayer's request qualifies as reasonable cause, the "Reasonable Cause Assistant" or RCA.

RCA will evaluate the taxpayer's request, and issue a recommendation as to whether or not to grant a relief from penalties due to reasonable cause.

One of the reason the IRS uses the RCA system is the "fair and consistent approach to penalty administration", the IRS must ensure that among other thing penalties should be applied equally in similar situations.

The IRS's commitment to consistency and the rigorous examination of claims for reasonable cause abatement, may put Israeli-Americans with unreported bank accounts in a problematic position. Claiming that you had reasonable cause for not reporting your Israeli income and accounts to the IRS while Israeli banks issue 1099 Forms and signing Israeli-American clients on W-9 and consent forms will probably become more and more difficult with time.

Furthermore, applying penalties consistently will cause Israeli-Americans unreported bank accounts to be penalized as any other unreported offshore account.

Our firm successfully handled hundreds of returns filed as part of the Streamlined Foreign Offshore Procedures, we consider the Streamlined Procedure an opportunity to become current with the IRS without penalties and will be glad to be of service.

The author is CPA (Isr.) Enrolled Agent (US) and specializes is US tax and IRS voluntary disclosers, contact information is available in the following link