Israeli government enjoined from disclosing personal account information to the IRS

One disadvantage of United States citizenship is that all income from whatever source, worldwide, is subject to taxation.  This is true regardless of how one obtains American citizenship; indeed, there are many "accidental Americans" who, by dint of having been born to a person with American citizenship, are technically American citizens, many of whom are now being hit with significant tax bills from the Internal Revenue Service.  Renunciation of American citizenship is possible, and is being done in record numbers, but it comes at a price in paperwork if not in dollars – the Expatriation Tax.

Complicating matters is the Foreign Account Tax Compliance Act (FATCA), which requires American taxpayers to report their foreign accounts to the United States Treasury.  The United State has entered into various Tax Information Exchange Agreements (TIEAs) with various countries to ensure that the foreign banks give the U.S. Treasury the information required under FATCA.  One such agreement is with Israel.

As a result, many foreign banks and brokerage firms, including many in Israel, are reluctant to open accounts with American citizens.

The ancient Romans; the British; and, once upon a time, the United States all asserted the interests of their citizens abroad.  In 1976, Israel rescued its citizens held by terrorists in a daring raid upon the Entebbe airport in Uganda.

Israel is now giving serious consideration to the interests of its citizens who also happen to hold American citizenship.  In an action brought by Republicans Overseas Israel, the Israeli Supreme Court has enjoined the government of Israel to cease and desist in its planned transfer of FATCA information to the IRS, pending a hearing on 12 September 2016.  The arguments used focused not so much on taxation per se, but upon the IRS's demonstrated data security deficiencies and the probability of resulting identity theft, a topic this writer has discoursed about in these pages on several occasions.  (This, by the way, exemplifies a judiciary that knows its mission to keep the executive function checked and balanced.)

Tax-related identity theft harms its victims not only financially, but also emotionally.  It subjects them – and their families – to much anguish.  And even beyond its poor data security and data stewardship practices, the IRS falls short in properly assisting the victims of tax-related identity theft.

Reporting of personal financial information to the IRS is comparable to a prosecutor's disclosure to the crime syndicate the identity of a witness in a major prosecution.

The main difference is that the potential damage inflictable by the Mob has its limits.

Kenneth H. Ryesky, now a senior adviser with the U.S. Desk of Ernst & Young's International Tax Services in Tel Aviv, is a lawyer who has taught business law and taxation at Queens College CUNY.  He formerly served as an attorney for the IRS.  The views expressed here are his own.