Many Americans who make aliyah are told, incorrectly, by their U.S. tax return preparer that once they settle in Israel they do not have to file U.S. returns.
Accountant Don Shrensky says there are two types of tax “damage” that new immigrants can incur. One can “easily be repaired,” while the other is “monumental.”
“Many Americans who make aliyah are told by their U.S. tax return preparer that once they settle in Israel they do not have to file U.S. returns,” explains Shrensky. “Obviously, this is incorrect information. If they recently came, then they can easily repair any damage. But if they made aliyah 10 or 20 years ago, the problem can be monumental.”
The “real problem” Shrensky says, is what he calls the “accidental U.S. person” – a U.S. citizen who immigrates as a youngster. “We have had several clients who were born in the U.S. while their parents were on sabbatical and returned to Israel at a very young age,” explains Shrensky. “They are U.S. citizens because they were born there. But they grew up in Israel, created lives and fortunes in Israel, and married Israeli [non-U.S.] spouses. They never filed U.S. returns, nor the required FBARS [Foreign Bank and Financial Accounts], because they had no idea they had such a requirement.”
Shrensky notes that in December 2011 the IRS issued a “fact sheet” recognizing that such U.S. persons should be treated more leniently.
“But they still have to prove they had reasonable cause not to have filed FBARS,” he says.