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Douglas Goldstein, married, father of four, is the owner and director of Profile Investment Services ( He is the co-author of the book "Rich As a King: How the Wisdom of Chess Can Make You a Grandmaster of Investing," and blogs on on how using chess... More
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  • Do You Know Your Tax Obligations As An American Abroad? 0 comments
    Jul 30, 2013 4:36 AM

    Many American citizens living overseas have no idea of their tax obligations and the stricter enforcement of these laws. The obligation to file taxes on your worldwide income even extends to U.S. citizens who have never set foot in the United States.

    To find out more, I recently interviewed Stanley Barg, a lawyer with Kozusko Harris Duncan who specializes in tax law, who is also the head of STEP (Society of Trust and Estate Practitioners) on The Goldstein on Gelt Show. Stan explained these obligations and what they mean for Americans living in Israel - or any other country in the world.

    Read the transcript of the interview below to learn more.

    Douglas Goldstein: You come to Israel a lot and you deal a lot with the U.S. tax obligations of U.S. citizens and green cardholders living in Israel. What are some of the big issues that they are confronting now?

    Stanley Barg: One of the issues that I think a lot of people have come to realize and didn't realize before is the extent to with U.S. citizens remain subject to U.S. tax, even though they are living in Israel or anywhere else outside the United States. U.S. citizens are fully subject to U.S. income tax on their worldwide income and U.S. estate taxes, as well, on their worldwide assets. I think a lot of people maybe didn't fully realize or fully realize the extent to which their tax and filing requirements followed them when they left the United States and came to live in Israel.

    The United States retains its right to tax its citizens irrespective of what else might be in the treaty, so U.S. citizens do remain subject to tax, even if they don't actually owe tax, because they get a credit for the Israeli taxes which they pay. They still have filing requirements to report on their income and their assets and such, as if they were here, and there can be some substantial penalties for not complying with all those requirements.

    Douglas Goldstein: How do Israeli pensions fit into the picture?

    Stanley Barg: With Israeli pensions, a lot of times they have not qualified as such in the United States and they might be subject to tax on a current ongoing basis. One of the difficult things with all investments that U.S. people have when they are outside the United States is that a lot of times those investments are not really oriented towards U.S. tax reporting and that can make compliance very difficult for U.S. taxpayers.

    Douglas Goldstein: And sometimes they are actually considered as what in America would be referred to as an offshore mutual fund?

    Stanley Barg: Yes, exactly, and they are subject to tax as such and sometimes, particularly if they have corporations, as part of the structure under which they are organized as corporations there may be passive foreign investment companies, or what we call PFICs, that also have additional filing requirements incident to those.

    Douglas Goldstein: People who made aliyah and moved to Israel over the years, certainly 5, 10, 15, or 20 years ago, got excited because there were these offshore mutual funds salesmen who said, "Hey you can buy this mutual fund as there is no tax." But now they are finding that when they have to clean up their act, they end up in voluntary disclosure programs if not worse.

    Stanley Barg: We are seeing a lot of people in situations like that, unfortunately, and we're trying to clean it up as most expeditiously as we possibly can for people. But the U.S. has gotten much more active in looking for people who are outside the United States and making sure they are completing all their filing requirements. There are additional filing requirements over the years, in addition to the FBAR requirements which many people are familiar with. For the U.S. people to disclose their foreign financial accounts, there are now forms necessary to disclose really all of your foreign assets which you hold. There's a form 8938, which was put into place where people have to disclose that.

    Douglas Goldstein: Does that include real estate?

    Stanley Barg: Real estate profits earned directly don't have to be disclosed in that form, but if they own the real state through an entity such as a company of some sort, the company itself needs to be disclosed rather than the real estate itself. But if they are om real estate directly that's not something that needs to be disclosed.

    This area does get very complicated. There is sometimes a situation where people don't even realize they are U.S. citizens but they are U.S. citizens because of whatever their circumstances may have been. They may have been born in the United States or their parents were, and they spent a sufficient time in the U.S. that their children are U.S. citizens as well. We also see it for green cardholders, people that have been and spent time in the United States with the green card and then left the U.S. without formally surrendering the green card. They may be regarded as subject to US tax just because of their green card status.

    Douglas Goldstein: In that event, what do you advise people who are considering terminating their green card status and are in fact giving up their U.S. citizenship?

    Stanley Barg: It's something that needs to be looked at very carefully because of the fact that the United States has been so aggressive that an increasing number of people are thinking of doing it. One figure I heard is that since 2008, six times more people on an annual basis are deciding to give up their citizenship or green cards than they did before in spite of the fact that the rules have gotten more strict for most people who either are citizens or had their green cards for at least eight years. If they surrender that status, they are then subject to an exit tax that's basically treated as if they sold their worldwide assets on the day before they terminated their U.S. status and they have to pay an income tax based on that.

    Douglas Goldstein: If someone let's say lives in United States for 10, 20, 30 years as a grownup and then moves to Israel and ultimately gives up his U.S. citizenship, does he then have to sacrifice his social security that he would eventually get, or is that a pension you get because you paid into the system?

    Stanley Barg: It's basically a pension that you get because you paid into the system. What there is threatened to be is with respect to citizens who leave the U.S. There is a provision in the law that has not been generally enforced that is referred to as the Reed Amendment, under which they can forbid you to come back into the United States if they determine that you gave up your citizenship for tax avoidance. To my knowledge that's never been successfully prosecuted against anyone, although in the last couple of years there has been a bit of talk about it.

    Douglas Goldstein: One of the things that you do is you are also the head of STEP USA. As such, you are dealing with a lot of trusts that people may have set up in the United States for the benefit of someone in Israel. Have you seen any important changes that people should be aware of recently?

    Stanley Barg: I think that one of the advantages of a group like STEP is that you get to work with professionals all over the world. We are finding for our clients that increasingly, where families have interests in different countries, you need to be up-to-date and working with the professionals in those countries to get the right result for the family as a whole. If I have a family where, for example, the parents live in the United States and their children live in Israel, I can look at the planning from the U.S. perspective, but I need to work with professionals in Israel to be sure that what we are doing for the family as a whole achieves the right goals from an Israeli perspective as well and as the world is getting increasingly smaller with families being all over the place, that's really very important.

    Every country around the world is changing their laws in this area almost from year to year, so you really need to be sure you are getting up-to-date advice in all of the relevant countries.

    Douglas Goldstein: How can people follow your work?

    Stanley Barg: I'm based in New York with the firm Kozusko Harris Duncan. Our website is, and I'd be very happy for people to get in touch if they have any questions and be happy to help them.

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