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Essential IRS Reporting Obligations for Israelis
Did you know every Israeli who is also a U.S. person must report foreign financial accounts to the IRS? Every year many Israeli-Americans face penalties for missing mandatory filings. The core frameworks are FBAR, FATCA, and Form 8938. Each has different thresholds and penalties.
The duty to report is independent of residence or income level. U.S. citizens, Green Card holders, and those who meet the Substantial Presence Test must report worldwide income and specified foreign assets. Enforcement tightened since FATCA (2010) and Israel–U.S. FATCA IGA.
FBAR — Foreign Bank Account Report
Required if the aggregate value of foreign accounts exceeded $10,000 at any time during the year. Filed electronically via FinCEN BSA E-Filing (Form 114). Deadline April 15 with automatic extension to October 15. Civil penalties can be severe, including up to 50% of the account’s highest balance for willful violations.
FATCA / Form 8938 — Specified Foreign Financial Assets
Form 8938 is attached to Form 1040 and covers a wider set of assets than FBAR. For individuals living outside the U.S.: single ≥ $200,000 end-of-year or ≥ $300,000 at any time; married filing jointly ≥ $400,000 / ≥ $600,000. Penalties start at $10,000 and can escalate.
Common Scenarios
Tech employee with Israeli checking, savings, pension, and investment accounts: typically FBAR required; Form 8938 only if thresholds are met. Married couple with combined Israeli pensions and accounts above FATCA thresholds: both FBAR and Form 8938 required. Business owners may also trigger Forms 5471/8865 for foreign corporations/partnerships.
Frequent Errors
- Misunderstanding what counts as a foreign asset.
- Ignoring signature-authority accounts and corporate accounts.
- Using wrong FX rate; reporting must be in USD using Treasury year-end rates.
- Confusing FBAR and tax return deadlines and systems.
Process
- Inventory all foreign accounts and assets. Capture highest yearly balance and 12/31 balance.
- Determine filings: FBAR, Form 8938, and where relevant 5471/8865/3520/3520-A.
- Prepare and file: FBAR via BSA E-Filing; Form 8938 with Form 1040.
- Retain records for at least six years; monitor notices and confirmations.
FAQ Highlights
Minor children with U.S. citizenship can have filing obligations. Real estate itself is not a Form 8938 asset, but proceeds in a bank account may trigger FBAR/8938. Israeli pensions and savings plans can be reportable and may require additional forms in some structures.
Key Takeaways: Reporting is mandatory for U.S. persons regardless of residence. FBAR threshold is low and broad. Penalties are significant. Voluntary compliance programs may help remediate past noncompliance. Professional guidance is advisable.