If you live in Israel, most US federal tax deadlines that fell on or after October 7, 2023 are now postponed to September 30, 2027. On September 30, 2026 the IRS issued Notice 2026-63, the fourth notice in a row granting this relief. Here is what the relief does, who qualifies, what it leaves out, and where the rules are still unclear.

Background

The relief rests on Internal Revenue Code §7508A, which lets Treasury postpone tax deadlines by up to one year for taxpayers affected by a federally declared disaster or by a "terroristic or military action" under §692(c)(2). Before issuing relief for an event abroad, Treasury confirms with the State and Justice Departments that the activity was directed against the United States or an ally (Rev. Proc. 2004-26).

Because each grant is capped at one year, the IRS cannot simply extend the original notice. Instead, every September it makes a new terroristic-action determination for the prior two years and issues a fresh notice. Each new notice starts its window on the day the previous one ends, so postponed deadlines roll forward without a gap for anyone who stays eligible.

Summary of the notices

Taken together, the four notices postpone deadlines falling between October 7, 2023 and September 30, 2027.

Each later notice also carries forward anything still postponed under the earlier ones, but only for taxpayers who are eligible under both. For example, Notice 2026-63 states that a taxpayer eligible under 2025-53 but not under 2026-63 had until September 30, 2026.

Who is covered

You qualify if you fall into any of these groups listed in Notice 2026-63 (the earlier notices use the same list). The "covered area" is Israel, the West Bank and Gaza.

• Residents and local businesses. Any individual whose principal residence, or any business or sole proprietor whose principal place of business, is in the covered area.
• Taxpayers whose preparer or records are in Israel. Any individual, business, estate or trust whose tax return preparer, or whose records needed to meet the deadline, are in the covered area. This can include a US resident who uses an Israeli tax firm.
• Relief workers affiliated with a recognized government or philanthropic organization and assisting in the covered area.
• Spouses of an affected taxpayer, for purposes of a joint return only.
• Visitors to the covered area who were killed, injured or taken hostage.

If the IRS already has an Israeli address on file for you, relief is applied automatically. Everyone else, including US residents relying on an Israeli preparer, should call the IRS disaster hotline at (866) 562-5227, or (267) 941-1000 from outside the US, to request relief.

What is covered

The relief postpones three things: filing, paying, and the penalties and interest that would normally follow a late filing or payment.

• Filing. Income, estate, gift, employment and most excise tax returns due in the window. Under Notice 2026-63 that includes 2025 individual returns on extension (normally October 15, 2026) and 2026 returns (normally April 15, 2027).
• Payments. Balances due with those returns and estimated tax installments, including the January 15, April 15, June 15 and September 15, 2027 estimates.
• Penalties and interest. Under §7508A(a), the postponement period is disregarded when calculating interest, penalties and additions to tax. If you receive a late-filing or late-payment penalty notice for this period, call the number on the notice to have it abated.
• Other time-sensitive acts. Filing a Tax Court petition, filing a claim for refund, bringing a refund suit, and making qualified retirement plan contributions (see Treas. Reg. §301.7508A-1(c)(1) and Rev. Proc. 2018-58).

The IRS gets the same extra time on its side. Deadlines for assessing tax, issuing notices and demands, and collecting are also postponed for affected taxpayers.

A postponement is not the same as an extension. Notice 2026-63 says that if you need more time beyond September 30, 2027, you should check the extension rules for your specific return.

What is not covered

Anything due before October 7, 2023. The relief only reaches deadlines that fell on or after October 7, 2023. The IRS made this explicit in 2023: a 2022 return on extension (due October 16, 2023) could be filed late under the relief, but the 2022 tax itself was due April 18, 2023, so late payment of that tax was not covered. Interest and penalties on older balances continue to run as usual.

State taxes. The notices are federal only. Each state decides for itself whether to follow IRS disaster relief, so former US residents who still have a state filing obligation should check that state's rules separately.

FBARs, unless FinCEN says so. The FBAR is a Treasury (FinCEN) filing, not an IRS tax return, so §7508A does not cover it. FinCEN has issued parallel relief in the past, for example FIN-2024-NTC5 gave until September 30, 2025 for 2023 FBARs, but each year's FBAR relief should be confirmed directly with FinCEN.

Grey areas

Two questions come up often in our practice where the notices do not give a clear answer. Treat what follows as open issues, not settled law.

Statute of limitations on refunds

Filing a refund claim is a listed postponed act, and §7508A(a)(3) lets the postponement period be disregarded in determining the amount of a credit or refund. So a refund claim whose three-year deadline under §6511 fell in the window should still be timely if filed by September 30, 2027.

The harder question is the amount. Section 6511(b) limits a refund to tax paid within a "lookback" period before the claim, and withholding and estimated payments are treated as paid on the original due date. It is not settled how far four stacked notices, each a separate one-year grant, stretch that lookback. Taxpayers with old unfiled refund years should not wait until the last day, and should file as early as possible to reduce the risk.

Issuance dates of SSNs

Several credits require a Social Security number issued by the due date of the return. For example, §24(h)(7) requires this for a child to qualify for the child tax credit. Many families in Israel obtain SSNs for their children late, and file returns during the postponement period.

The open question is whether "due date" means the original statutory date or the postponed date. Notice 2026-63 itself says a postponement is not an extension of time to file, which cuts against reading the postponed date as the due date. We are not aware of published IRS guidance resolving this.

A case from our practice. One of our clients lives in Israel and had a child born in 2022. The child's SSN was issued in November 2023, after the extended due date for 2022 returns (October 16, 2023). She claimed the child and the child tax credit on an amended 2022 return. The IRS rejected the claim, citing the SSN timing rule. We appealed, arguing that the disaster-relief postponement moved the 2022 due date, so the SSN was issued in time. Appeals agreed and allowed the credit.

The outcome was favorable, but it took years. The amended return was filed in April 2024, rejected in March 2025, and resolved only after a reconsideration request and a formal Appeals protest. One Appeals result is also not precedent, and another taxpayer could get a different answer. Families should still apply for SSNs as early as possible rather than rely on the postponement.

What this means for you

Unless the IRS issues a fifth notice, everything postponed since October 7, 2023 must be filed and paid by September 30, 2027. That includes 2023, 2024, 2025 and 2026 returns that have not yet been filed.

• Don't let three years of returns pile up into one deadline. Filing early costs nothing and avoids a crunch.
• If you moved out of Israel, check whether you are still eligible under the latest notice. Relief only carries forward for taxpayers eligible under each notice in the chain.
• If you live in the US (or anywhere outside of Israel) but your preparer or records are in Israel, call the IRS hotline to have relief applied to your account. IRS disaster hotline is (866) 562-5227, open 8AM central time.
• If you are owed a refund for an older year, or need an SSN for a child, act now rather than rely on the postponement.

Cole & Waxman Tax Services works with US taxpayers in Israel on returns, FBARs and IRS correspondence. If you are unsure how the relief applies to you, contact us.

Sources

• IRS Notice 2026-63 and IR-2026-116
• IRS Notice 2025-53
• IRS Notice 2024-72 and IR-2024-252
• Notice 2023-71, summarized by KPMG and The Tax Adviser
• FinCEN FIN-2024-NTC5

Disclaimer

This article is provided for general educational and informational purposes only and does not constitute tax, legal, investment, or financial advice. Reading this article or communicating with Cole & Waxman Tax Services does not create a client relationship.

The investment platforms, financial institutions, and products referenced in this article are mentioned for illustrative purposes only and do not constitute endorsements or recommendations. Availability, eligibility, and suitability vary by individual circumstances and jurisdiction.

Before making any investment or financial decisions, you should consult with your own qualified tax advisor, financial planner, or other professional who is familiar with your specific situation.

The post Israel Disaster Relief: IRS Postponements for Taxpayers Affected by the October 7 Attacks appeared first on Cole & Waxman Tax Services.

Background

The relief rests on Internal Revenue Code §7508A, which lets Treasury postpone tax deadlines by up to one year for taxpayers affected by a federally declared disaster or by a "terroristic or military action" under §692(c)(2). Before issuing relief for an event abroad, Treasury confirms with the State and Justice Departments that the activity was directed against the United States or an ally (Rev. Proc. 2004-26).

Because each grant is capped at one year, the IRS cannot simply extend the original notice. Instead, every September it makes a new terroristic-action determination for the prior two years and issues a fresh notice. Each new notice starts its window on the day the previous one ends, so postponed deadlines roll forward without a gap for anyone who stays eligible.

Summary of the notices

Taken together, the four notices postpone deadlines falling between October 7, 2023 and September 30, 2027.

Each later notice also carries forward anything still postponed under the earlier ones, but only for taxpayers who are eligible under both. For example, Notice 2026-63 states that a taxpayer eligible under 2025-53 but not under 2026-63 had until September 30, 2026.

Who is covered

You qualify if you fall into any of these groups listed in Notice 2026-63 (the earlier notices use the same list). The "covered area" is Israel, the West Bank and Gaza.

• Residents and local businesses. Any individual whose principal residence, or any business or sole proprietor whose principal place of business, is in the covered area.
• Taxpayers whose preparer or records are in Israel. Any individual, business, estate or trust whose tax return preparer, or whose records needed to meet the deadline, are in the covered area. This can include a US resident who uses an Israeli tax firm.
• Relief workers affiliated with a recognized government or philanthropic organization and assisting in the covered area.
• Spouses of an affected taxpayer, for purposes of a joint return only.
• Visitors to the covered area who were killed, injured or taken hostage.

If the IRS already has an Israeli address on file for you, relief is applied automatically. Everyone else, including US residents relying on an Israeli preparer, should call the IRS disaster hotline at (866) 562-5227, or (267) 941-1000 from outside the US, to request relief.

What is covered

The relief postpones three things: filing, paying, and the penalties and interest that would normally follow a late filing or payment.

• Filing. Income, estate, gift, employment and most excise tax returns due in the window. Under Notice 2026-63 that includes 2025 individual returns on extension (normally October 15, 2026) and 2026 returns (normally April 15, 2027).
• Payments. Balances due with those returns and estimated tax installments, including the January 15, April 15, June 15 and September 15, 2027 estimates.
• Penalties and interest. Under §7508A(a), the postponement period is disregarded when calculating interest, penalties and additions to tax. If you receive a late-filing or late-payment penalty notice for this period, call the number on the notice to have it abated.
• Other time-sensitive acts. Filing a Tax Court petition, filing a claim for refund, bringing a refund suit, and making qualified retirement plan contributions (see Treas. Reg. §301.7508A-1(c)(1) and Rev. Proc. 2018-58).

The IRS gets the same extra time on its side. Deadlines for assessing tax, issuing notices and demands, and collecting are also postponed for affected taxpayers.

A postponement is not the same as an extension. Notice 2026-63 says that if you need more time beyond September 30, 2027, you should check the extension rules for your specific return.

What is not covered

Anything due before October 7, 2023. The relief only reaches deadlines that fell on or after October 7, 2023. The IRS made this explicit in 2023: a 2022 return on extension (due October 16, 2023) could be filed late under the relief, but the 2022 tax itself was due April 18, 2023, so late payment of that tax was not covered. Interest and penalties on older balances continue to run as usual.

State taxes. The notices are federal only. Each state decides for itself whether to follow IRS disaster relief, so former US residents who still have a state filing obligation should check that state's rules separately.

FBARs, unless FinCEN says so. The FBAR is a Treasury (FinCEN) filing, not an IRS tax return, so §7508A does not cover it. FinCEN has issued parallel relief in the past, for example FIN-2024-NTC5 gave until September 30, 2025 for 2023 FBARs, but each year's FBAR relief should be confirmed directly with FinCEN.

Grey areas

Two questions come up often in our practice where the notices do not give a clear answer. Treat what follows as open issues, not settled law.

Statute of limitations on refunds

Filing a refund claim is a listed postponed act, and §7508A(a)(3) lets the postponement period be disregarded in determining the amount of a credit or refund. So a refund claim whose three-year deadline under §6511 fell in the window should still be timely if filed by September 30, 2027.

The harder question is the amount. Section 6511(b) limits a refund to tax paid within a "lookback" period before the claim, and withholding and estimated payments are treated as paid on the original due date. It is not settled how far four stacked notices, each a separate one-year grant, stretch that lookback. Taxpayers with old unfiled refund years should not wait until the last day, and should file as early as possible to reduce the risk.

Issuance dates of SSNs

Several credits require a Social Security number issued by the due date of the return. For example, §24(h)(7) requires this for a child to qualify for the child tax credit. Many families in Israel obtain SSNs for their children late, and file returns during the postponement period.

The open question is whether "due date" means the original statutory date or the postponed date. Notice 2026-63 itself says a postponement is not an extension of time to file, which cuts against reading the postponed date as the due date. We are not aware of published IRS guidance resolving this.

A case from our practice. One of our clients lives in Israel and had a child born in 2022. The child's SSN was issued in November 2023, after the extended due date for 2022 returns (October 16, 2023). She claimed the child and the child tax credit on an amended 2022 return. The IRS rejected the claim, citing the SSN timing rule. We appealed, arguing that the disaster-relief postponement moved the 2022 due date, so the SSN was issued in time. Appeals agreed and allowed the credit.

The outcome was favorable, but it took years. The amended return was filed in April 2024, rejected in March 2025, and resolved only after a reconsideration request and a formal Appeals protest. One Appeals result is also not precedent, and another taxpayer could get a different answer. Families should still apply for SSNs as early as possible rather than rely on the postponement.

What this means for you

Unless the IRS issues a fifth notice, everything postponed since October 7, 2023 must be filed and paid by September 30, 2027. That includes 2023, 2024, 2025 and 2026 returns that have not yet been filed.

• Don't let three years of returns pile up into one deadline. Filing early costs nothing and avoids a crunch.
• If you moved out of Israel, check whether you are still eligible under the latest notice. Relief only carries forward for taxpayers eligible under each notice in the chain.
• If you live in the US (or anywhere outside of Israel) but your preparer or records are in Israel, call the IRS hotline to have relief applied to your account.  IRS disaster hotline is (866) 562-5227, open 8AM central time.  
• If you are owed a refund for an older year, or need an SSN for a child, act now rather than rely on the postponement.

Cole & Waxman Tax Services works with US taxpayers in Israel on returns, FBARs and IRS correspondence. If you are unsure how the relief applies to you, contact us.

Sources

• IRS Notice 2026-63 and IR-2026-116
• IRS Notice 2025-53
• IRS Notice 2024-72 and IR-2024-252
• Notice 2023-71, summarized by KPMG and The Tax Adviser
• FinCEN FIN-2024-NTC5

Disclaimer

This article is provided for general educational and informational purposes only and does not constitute tax, legal, investment, or financial advice. Reading this article or communicating with Cole & Waxman Tax Services does not create a client relationship.

The post Israel Disaster Relief: IRS Postponements for Taxpayers Affected by the October 7 Attacks appeared first on Cole & Waxman Tax Services.

A new U.S. savings vehicle for children — informally known as the “Trump Account” — is beginning to attract attention among American families worldwide. For U.S. citizens living in Israel, this account offers a rare opportunity to start building long-term wealth for children from birth — with government funding and tax-deferred growth.

At the same time, dual U.S.–Israeli families must navigate two tax systems, making planning more nuanced than it first appears. In this article, we’ll focus on the $1,000 benefit available for young children with Social Security numbers. In the next installment, we’ll explore the pros and cons of adding extra funds from the family’s after-tax savings (spoiler: it’s usually not a good idea!).

But let’s start with the $1,000 seed accounts. Here, there’s no downside. Even with the restrictions, this represents money the child wouldn’t otherwise have — a true opportunity to build a financial foundation at no cost to the family.

What Is a Trump Account?

A Trump Account is a federally created tax-advantaged investment account for children under age 18.

Key features:

• Opened in the child’s name
• Earnings grow tax-deferred for U.S. purposes
• Converts into a retirement-style account at adulthood
• Parents, grandparents, and relatives may contribute up to $5,000 per year per child
• Certain children qualify for a $1,000 U.S. government seed deposit

The $1,000 Government Seed Deposit — How It Works

Children may receive a one-time $1,000 federal deposit if all of the following are met:

1. Born during the eligible window (currently births from 2025–2028).
2. The child has a valid U.S. Social Security Number.
3. A parent or guardian makes the required election on a U.S. tax return.
4. A Trump Account is opened in the child’s name.

The deposit is not taxable income and grows tax-deferred inside the account.

Investment Tracks Inside Trump Accounts

Permitted investments include:

• Broad U.S. stock market index funds
• Total-market or large-cap U.S. equity ETFs

Foreign funds, alternatives, sector funds, and crypto are not permitted.

How U.S. Citizens Living in Israel Can Obtain the $1,000 Trump Account Seed Deposit

For Americans living in Israel, the opportunity is very real — but the process is not automatic and requires deliberate action. Below are the three ways to obtain the $1,000 seed money and the important brokerage issues unique to expats.

Who Is Eligible?

Your child must:

• Be a U.S. citizen
• Have a valid Social Security number
• Be born between January 1 2025 and December 31 2028
• Have a Trump Account established through one of the methods below

There are no income limits.

Option 1 (Most Common)

File Your U.S. Tax Return and Attach Form 4547

This will be the default approach for most families.

When you file your U.S. tax return, attach Form 4547 – Trump Account Election to establish the account and request the $1,000 government contribution.

• Can be filed:
  • Electronically (preferred)
  • Or with a paper return
• This method works even if you normally owe zero U.S. tax.

Once processed, Treasury deposits the $1,000 directly into the newly created Trump Account.

Option 2

File Form 4547 as a Stand-Alone Form (No Tax Return)

If you are not required to file a U.S. tax return (for example, you have no income), you may submit Form 4547 by itself.

For U.S. citizens living in Israel, mail the form to:

Internal Revenue Service
Austin, TX Service Center
(International filings — same address used for Form 1040 from Israel)

This allows you to receive the $1,000 seed deposit without filing a full tax return.

Option 3

Register Online at TrumpAccounts.gov (No Tax Return Required)

Beginning mid-2026, parents will be able to open Trump Accounts online at:

👉 www.trumpaccounts.gov

This method will:

• Not require filing a tax return
• Allow direct online account establishment

However, the system will require identity verification, likely through ID.me or a similar platform.

⚠️ Expat warning:
ID verification can be very difficult without a U.S. address, U.S. phone number, or recent U.S. credit history. Many Americans in Israel encounter obstacles completing ID.me verification.

You Will Also Need a Brokerage Custodian

Opening the Trump Account with the IRS is only the first step. To actually invest the funds, the account must be held with a brokerage custodian.

This is where many Americans abroad get stuck:

• Many U.S. brokerages require U.S. residency or a U.S. address.
• Accounts are often frozen or rejected once a foreign address is disclosed.

Two firms that are generally reported to work with U.S. citizens living in Israel are:

• Charles Schwab
• Interactive Brokers

No endorsement is given or implied — policies change frequently, and you must confirm eligibility directly with the custodian before relying on any firm.

Which Option Is Best for Americans in Israel?

Final Notes

• The $1,000 seed deposit is in addition to the Child Tax Credit.
• Parents and relatives may contribute up to $5,000 per year, but basis must be tracked carefully to avoid double taxation on withdrawal.
• Every child who is also an Israeli resident must comply with both U.S. and Israeli tax rules, and families should consult their Israeli CPA regarding potential “Teisha Gimel” treatment.

Disclaimer

This article is for educational purposes only and does not constitute tax, legal, or investment advice. Every family’s situation is different. You should consult with your U.S. and Israeli tax advisors before opening or funding any Trump Account.

The post Trump Accounts Part 1: A New Tax-Advantaged Savings Account for Children – How to Obtain the $1000 Seed Deposit appeared first on Cole & Waxman Tax Services.

Let’s walk through some core concepts regarding state tax filings, especially what to keep in mind if you’re a US citizen living abroad.

Most States tax individuals based on two main factors – residency and source of income.

1. Residency Is About Intent — Not Just Where You Sleep

States generally classify individuals as one of the following:

• Resident – taxed on all income, regardless of where it’s earned
• Nonresident – taxed only on income sourced to that state
• Part-YearResident – has two components:
  • Resident portion – taxes all income (active and passive) earned while you were a resident
  • Nonresident portion – taxes only income sourced to that state after residency ended

A taxpayer is generally considered a resident of a state if:

• The state is your Domicile – your true, fixed, permanent home. Supporting facts include driver’s license, voter registration, vehicle registration, and where your family lives. OR:
• The taxpayer meets the state’s Statutory residency rules– many states apply a “permanent home + 183 days” rule

A college student or someone owning multiple homes needs to establish for themselves where their permanent residence is for tax purposes.

2. Income Is Taxed Where It Is Sourced

Most common categories of income that can trigger state tax obligations include:

• W-2 wages Typically W2 wages are sourced to the state where the work is physically done. Remote work has become a huge audit trigger because a W2 still might source income to a specific state even when the work is physically done from home in a different state or in an entirely different country! Some states enforce ‘convenience of the employer’ rules; meaning wages may still be taxed by the employer state even if the employee is remote. If you work remotely for your own convenience rather than because the employer requires it in another state, the state may still tax the income as if you worked in their state. Some states are more difficult than others regarding telecommunication. (NY is one such state)
• K-1 partnership income – many entities operate in multiple states
• Rental real estate – rental income is always taxed first in the state where the property is located

3. Credits for Taxes Paid to Other States

When two states tax the same income, more common with resident state returns, a credit may apply — but it is not automatic. If a taxpayer is a resident of one state (such as NY) but works in NJ, NJ will tax the wages earned in NJ and then NY will take tax credit on that income. If the second state has a higher tax rate, than the tax credit paid to the first state will not be enough and the taxpayer may be charged excess tax.

4. Part-Year vs. Nonresident Returns

5. Practical Compliance Tips

Here are some practical takeaways if you earned income while being physically present in the US or have state sourced income while living exclusively abroad:

• Track days present in the US when allocating income between US and Israel. Track days present in each state if traveling for business around the US.
• Some states do not allow e-filing with a foreign address and those returns will need to be paper filed via postal service.
• If a US citizen receives a W2 while living abroad, it may be difficult to prove telecommunication as a convenience of the employer to some states (most notably NY) so it may be best to update your address with the employer to avoid states taxes being withheld to begin with.
• Many states won’t honor the federal Israel war extension given by the IRS. Even though no additional interest/penalties will be calculated for federal income tax, state interest and penalties will still apply so it’s important to pay state tax in a timely manner.

Disclaimer:
This article is for educational purposes only and does not constitute tax or legal advice. Each taxpayer’s situation is unique and should be reviewed individually with a qualified tax professional.

The post Why “I don’t live in the U.S. anymore” does not always end your state tax obligations appeared first on Cole & Waxman Tax Services.

In our earlier article, “PFICs: A Practical Guide for the Perplexed,” we explained what Passive Foreign Investment Companies are, why they catch so many Americans abroad by surprise, and why the rules are so unforgiving.

Once people finally understand just how harsh the PFIC regime can be, a very reasonable follow-up question almost always comes next:

“If everything is a PFIC, what can I actually invest in?”

For many U.S. taxpayers living overseas, learning about PFICs creates paralysis. Suddenly it feels like every non-U.S. investment is a tax trap waiting to happen. The result? People stop investing — not because they don’t want to, but because they’re afraid of getting it wrong.

Here’s the good news: not everything is a PFIC. There are practical, compliant ways to invest without triggering PFIC headaches.

Let’s walk through the most common PFIC-free options.

A Quick Refresher: Why PFICs Are Such a Big Deal

PFICs generally include non-U.S. mutual funds, ETFs, and other pooled investment products. These are extremely common outside the United States, which is why so many Americans abroad end up owning them without realizing it.

The problem? PFICs are subject to some of the most punitive rules in the U.S. tax code:

• Potentially confiscatory tax treatment
• Ongoing, complex annual reporting — most notably Form 8621

For most investors, the most practical strategy isn’t trying to “optimize” PFICs — it’s simply avoiding them altogether.

So… What Can You Invest In?

1. U.S.-Domiciled Investments — The Gold Standard

The simplest way to avoid PFIC problems is to stick with U.S.-domiciled investments, even if you live abroad:

• U.S.-domiciled ETFs
• U.S. mutual funds
• Individual U.S. stocks and bonds

Because these are U.S. entities, PFIC rules do not apply at all.

Many expats invest through firms such as Charles Schwab, Morgan Stanley, Fidelity, or similar platforms.

The catch: Access.
Many non-U.S. banks and brokers restrict U.S. products due to local regulations — so where you invest can be just as important as what you invest in.

Robo-advisors such as Wealthfront and Betterment can also be an option, but they often:

• Require U.S. residency
• Require a U.S. mailing address
• Exclude most overseas investors

For Israel-based clients, using U.S. accounts usually also requires filing an Israeli tax return — which doesn’t necessarily increase total tax, but does add compliance work.

2. Interactive Brokers — Know Which One You’re Using

This is where many investors get tripped up. There are two completely different “Interactive Brokers” options.

Option A: Interactive Brokers (IBKR) — U.S. Brokerage

https://www.interactivebrokers.com

This is what most expats mean when they say they use Interactive Brokers.

IBKR:

• Provides access to U.S.-domiciled ETFs and securities
• Allows portfolios that are clearly PFIC-free
• Operates in dozens of countries
• Does not require a U.S. residential address
• Is well-understood by cross-border tax professionals

For many Americans abroad, IBKR becomes the foundation of their long-term investment strategy.

Option B: Interactive Brokers Israel (IBI) — Israeli Brokerage

This is not just a local branch of IBKR. It is a separate Israeli brokerage firm.

With IBI:

• The account is Israeli-domiciled
• Israeli reporting and withholding applies
• Many locally offered funds may be PFICs

You can invest in PFIC-free assets through an Israeli brokerage — but only with deliberate security selection and coordination with a cross-border advisor.

3. Owning Individual Stocks Directly

Another PFIC-free approach is simply owning individual stocks — U.S. or non-U.S.

Why this works:

• Individual stocks are not PFICs
• No Form 8621
• Accessible almost anywhere

The trade-off is diversification: it requires more time, capital, and knowledge to build a balanced portfolio — but for some investors, the clarity is worth it.

4. Cash, Bank Interest, and Bonds

Sometimes boring is beautiful.

• Checking and savings accounts
• Term deposits
• Directly-held bonds

These are not PFICs.

Interest is taxed under normal U.S. income tax rules, with no special reporting regime.

Directly-held bonds — including U.S. Treasuries, corporate bonds, and individual foreign bonds — are also generally PFIC-free.

For Israel-based clients, banks such as Bank of Jerusalem currently offer digital savings accounts with interest rates often around 3.5%–4%+, depending on term.
https://www.bankjerusalem.co.il/en/deposits-and-savings/deposit_products

The Bottom Line

PFIC rules are restrictive — but they do not mean you are banned from investing.

With the right structure and the right platforms, it is entirely possible to build a long-term, compliant investment strategy without PFIC stress.

If you’re not sure whether your current investments are PFIC-free, or you want help building a compliant plan, professional guidance can make all the difference.

Disclaimer

This article is provided for general educational and informational purposes only and does not constitute tax, legal, investment, or financial advice. Reading this article or communicating with Cole & Waxman Tax Services does not create a client relationship.

The investment platforms, financial institutions, and products referenced in this article are mentioned for illustrative purposes only and do not constitute endorsements or recommendations. Availability, eligibility, and suitability vary by individual circumstances and jurisdiction.

Before making any investment or financial decisions, you should consult with your own qualified tax advisor, financial planner, or other professional who is familiar with your specific situation.

The post If Everything is a PFIC, What Can I Actually Invest in? appeared first on Cole & Waxman Tax Services.

Basis determines:

• Whether losses are deductible
• Whether distributions are taxable
• Whether you recognize gain when selling your interest

And the rules are dramatically different between S Corporations and Partnerships.

What Is Investor Basis?

An investor’s basis generally:

• Starts with contributions
• Increases with income
• Decreases with losses and distributions

Simple in theory — until you see how differently it works across entity types.

S Corporation Basis: Narrow and Dangerous

An S Corporation shareholder’s basis is extremely limited.

What Increases S Corp Basis?

• Capital contributions
• Taxable income allocated to the shareholder
• Tax-exempt income
• Direct loans from the shareholder to the S Corp

What does not increase basis?

• Bank loans
• Mortgages
• Any third-party debt

This is where people get burned.

Example

Sarah invests $50,000 into an S Corp.
The company allocates her an $80,000 loss.

• She can only deduct $50,000 — the rest is suspended.
• Her stock basis drops to $0.

Next year the company distributes $20,000 cash.

Because Sarah has no basis, the entire $20,000 is taxed as a capital gain — even though economically she is still underwater.

Partnership Basis: Flexible and Powerful

Partnerships work very differently — and much more favorably.

What Increases Partnership Basis?

• Capital contributions
• Taxable income
• Tax-exempt income
• The partner’s share of partnership liabilities — for real estate partnerships this includes mortgages

This means partnership investors often have far more basis than cash invested.

Example

David invests $100,000 into a real estate LLC owning 50%.

The partnership buys a building for $1,000,000 using:

• $200,000 equity
• $800,000 mortgage

David’s basis becomes:

• $100,000 cash
  • $400,000 share of mortgage
• = $500,000 total basis

Year 1: David is allocated $120,000 loss
→ Fully deductible.

Year 2: Another $20,000 loss and a $50,000 cash distribution
→ The loss is deductible and the distribution is tax-free because he still has basis.

Why This Matters So Much

S Corporations routinely create these traps:

• Losses get suspended when investors need them most
• Distributions become taxable even though no profit was made
• Highly leveraged businesses get punished

Partnerships, on the other hand:

• Allow loss deductions funded by debt
• Permit tax-free distributions funded by refinancing
• Align tax results with economic reality

The Bottom Line

The wrong entity structure doesn’t just cost you money — it changes the timing and character of your income.

By the time most business owners discover basis limitations, the damage is already done.

Choosing between an S Corp and a Partnership is not a formality — it is a long-term tax strategy decision that should be made with full awareness of how investor basis truly works.

Disclaimer:
This article is for educational purposes only and does not constitute tax or legal advice. Please consult your tax advisor before restructuring or making investment decisions.

The post Investor Basis: Why Choosing Between an S Corporation and a Partnership Can Cost You Thousands appeared first on Cole & Waxman Tax Services.

Each year, more Americans and green-card holders decide to formally end their U.S. tax relationship. The reasons are deeply personal, but the tax consequences are anything but simple.

If you are considering expatriation, this article walks you through what the IRS actually means by “expatriate,” what events trigger expatriation, and how to avoid becoming a “covered expatriate” subject to the U.S. exit tax regime.

Why People Expatriate

Most clients come to this decision after years of frustration, not on a whim. Common motivations include:

Practical pressures

• Crushing U.S. tax compliance burden while living abroad
• Endless foreign bank account reporting (FBAR, FATCA)
• Closed accounts and de-risking by foreign banks

Emotional reasons

• Desire for simplicity and lower stress
• Wanting citizenship to match identity and reality
• Feeling disconnected from the U.S. tax system

Who Is an “Expatriate” in IRS Language?

Under the tax code, an expatriate is:

• A U.S. citizen who formally relinquishes citizenship, or
• A long-term U.S. resident (green-card holder) who stops being a lawful permanent resident.

A green-card holder becomes a “long-term resident” (LTR) if they held a green card in 8 of the last 15 tax years. Partial years count.

Treaty election years during this 15-year span can interrupt the count, delaying LTR status. This detail often changes the entire planning strategy.

What Actually Triggers Expatriation?

The IRS does not treat letting a green card expire as expatriation.

The most common expatriation events are:

• Renouncing U.S. citizenship before a U.S. consular officer (Form DS-4079 + $2,350 fee)
• Filing Form I-407 to abandon green-card status
• Making a treaty election (green-card holders only, after LTR status is achieved)

Covered vs. Non-Covered Expatriates

Not all expatriates are treated equally.

When departing the U.S. tax system as a covered expatriate, the IRS enforces IRC §877A to impose an exit tax on all appreciated assets you are transferring out of the country, similar to a capital gains tax. Additionally, IRC §2801 aims to prevent expatriates from avoiding estate taxes by transferring their wealth abroad and then bequeathing it back to U.S. heirs. This provision imposes an estate tax on inheritances received by U.S. beneficiaries from covered expatriates.

The Three Tests That Decide Your Fate

You are a covered expatriate if you fail any of these three tests:

1. Net Worth Test
   Net worth of $2 million or more on the expatriation date.
2. Tax Liability Test
   Average U.S. income tax liability for the prior 5 years is $206,000 or more (2025 figure).
3. Certification Test
   You cannot certify that you complied with all U.S. tax obligations for the last 5 years.

If you “pass” all three, you are a non-covered expatriate — the gold standard result.

Two Important Exceptions

Even if you fail the net-worth or tax-liability tests, you may still escape covered status if:

• You were a dual citizen at birth and expatriate from your other country of citizenship, or
• You were under age 18½ on the expatriation date.

What the IRS Requires When You Expatriate

• Form 8854 – Initial and Annual Expatriation Statement
• Often a dual-status tax return
• Exit tax calculation (covered expatriates only – IRC §877A)
• Compliance with IRC §2801 for gifts/inheritances to U.S. heirs (covered expatriates only, future Form 708)

Form 8854 – More consequential than it looks

Omitting Form 8854 can permanently convert a non-covered expatriate into a covered expatriate.

You must disclose:

• Your personal details and the date you gave up U.S. citizenship or long-term residency
• Confirmation that you complied with U.S. tax rules for the prior five years
• Your average U.S. income tax liability for those five years
• Your total net worth at the time you expatriated

The Bottom Line

Expatriation is not a form. It is a multi-year tax strategy.

The difference between doing this correctly and making a single error can easily exceed seven figures in lifetime tax exposure, especially for clients with Israeli pensions, trusts, or U.S. real estate.

If you are even thinking about expatriating, the correct time to plan is before you trigger the event — not after the damage is done.

At Cole & Waxman Tax Services, expatriation planning is a nuanced area of our practice, where thoughtful planning can make a meaningful difference for clients.

Disclaimer

This article is provided for general educational and informational purposes only and is not intended as tax, legal, or accounting advice. The information herein is not a substitute for professional advice tailored to your individual circumstances. Expatriation and exit-tax planning involve complex legal and tax issues that depend on specific facts and current law.

Before taking any action related to U.S. citizenship, green-card status, or expatriation planning, you should consult with a qualified tax and legal professional who is familiar with your situation.

The post Expatriating from the United States: What You Must Know Before You Cut Ties appeared first on Cole & Waxman Tax Services.

by I. David Waxman

Introduction

Dealing with the IRS isn’t anyone’s idea of fun. But mistakes happen, and when they do, you need a roadmap to get them corrected. Below are common issues taxpayers run into, followed by practical steps to resolve them.

1. Common IRS Problems

• Erroneous tax assessment – The IRS incorrectly assesses additional tax you don’t owe.
• Missing refund checks. The IRS sent the refund, but you didn't receive it (also see IRS form 3911).
• Misapplied tax payments
  • Posted to the wrong tax year
  • Posted under the wrong taxpayer (for example, the “spouse” on a joint return pays under their own SSN, and the IRS refuses to apply it to the joint balance).
• Penalty relief requests – If you missed a filing or payment deadline, you may qualify for a first-time penalty abatement if you’ve been compliant for the prior three years.
• Data entry errors – Wrong SSN, filing status, or other clerical mistakes.
• Disaster relief claims – Special rules extend deadlines if you’re in an area covered by IRS Notices (e.g., for residents of Israel seeking war relief, see IRS notices 2023-71, 2024-72).
• State tax issues – Sometimes it’s not the IRS but your state. Example: you list a New York address on your Form 1040 while living abroad, and New York issues a bill. The IRS shares data with the states, so you may need to call the state revenue department directly.

2. How to Fix the Problem

Step 1: Review Your IRS Records

Get your account transcripts from IRS.gov. (See our guide on registering—spoiler: it’s not simple.) Review wage & income, account, and tax return transcripts carefully for discrepancies.

Step 2: Establish a Written Record

Send a written explanation to the IRS.

• This won’t guarantee resolution, but it documents your good faith effort.
• You can use AI tools (ChatGPT, Claude, Copilot, Gemini, etc.) to draft, but always review and edit for accuracy.
• Mail the letter to the address on your notice, or fax it to +1 681-247-3101 (international fax). Include a copy of the notice.
• Keep a copy - this is important for establishing that you are doing your due diligence to resolve the conflict through normal channels before escalating.

Step 3: Call the IRS

• For international taxpayers: +1 267-941-1000 (6AM–11PM ET).
• Call at opening time for the shortest waits.
• Expect to spend 1–2 hours. This is for the wait time, verification process, and time on hold while they review your records.
  • 💡 Pro Tip for Sanity Put your phone on speaker — but set the volume just high enough that you’ll hear when a live person finally answers. The IRS hold muzak and repetitive messages are mind numbing; too much exposure can drive even the calmest taxpayer to the edge.
• Have your return and ID info handy (SSN, DOB, address). If you miss a question, they won’t help you.
• Be polite, explain the issue clearly, and hope for a sympathetic rep. Some fix problems immediately; others don’t.
• Afterward, write up your notes and send a summary to the IRS by mail/fax for your records. See notes above on Step 2.
  • 💡 Extra tip: Hope for the best, but be prepared for the worst—whether dealing with the IRS or life in general. Occasionally, you'll reach a representative who listens with empathy and genuinely tries to help. Others may respond with indifference, showing little concern for your issue or the time you spent waiting. Most fall somewhere in between. Do the best you can with whoever you're dealing with.

Step 4: Wait and Recheck

While IRS representatives often estimate 30 days for corrections, allow 60-90 days for processing before following up. Then check your transcripts again. If the correction shows up—victory! If not, got back to step #3 and repeat the process. Give it another 60 days, and the it is time to escalate.

Step 5: Escalate to the Taxpayer Advocate Service (TAS)

• File Form 911 by mail or fax.
• If your case is accepted, TAS will request supporting documents (often ones you already gave the IRS). Provide them promptly.
• TAS is swamped, so getting an advocate assigned is a big win.

Step 6: Contact Your Senator or Representative

If TAS doesn’t help, reach out to the last state where you lived. Congressional offices only assist constituents. Visit their website and look for the IRS casework request section.

Other: Respond to a Statutory Notice of Deficiency

This is the IRS formally saying you owe more tax. You can:

• File a petition in Tax Court (even without a lawyer, “pro se”). Court fee is $60.
• IMPORTANT: The deadline is 90 days from the date of the assessment if you live in the USA. If you live outside the USA (like most of our clients), then the window is 150 days. The tax court has zero flexibility. If you miss this deadline, then this door closes permanently.
• The IRS will transfer the case to Appeals, where you can negotiate.
• If Appeals fails, work directly with IRS Counsel.
• If that fails, a Tax Court judge decides. (Most cases settle before then.)
• Tip: You can engage a CPA or Enrolled Agent to represent you after you file the petition.

Other: File an Amended Return (Form 1040X)

• Amended returns require a formal IRS response, unlike letters or phone calls.
• This is another option that could be implemented at any point.
• Processing can take up to two years.

Getting Ahead of the Curve

When the IRS makes an error, the path to resolution is often uneven. Most taxpayers never push back, which means the Service rarely corrects mistakes unless pressured. By leveraging the right resources, you can move your case forward faster than most people do.

The reality is that with each escalation step, fewer taxpayers follow through:

Takeaway: If you’re proactive and willing to escalate when necessary, you stand out from the majority who simply give up. That persistence can make the difference between years of waiting and a timely correction.

Final Thoughts

IRS conflict resolution is a marathon, not a sprint. Start by gathering your records, documenting every step, and escalating strategically. With persistence—and sometimes a little help from an advocate, attorney, or member of Congress—you can usually reach a resolution.

Disclaimer: This article is for educational purposes only and does not constitute legal, accounting, or tax advice. Every taxpayer’s situation is unique. The article could include errors and/or outdated information. You should consult a qualified tax professional before taking any action based on the information provided.

Last updated: September 10, 2025. IRS rules change; verify on IRS.gov.

The post IRS Conflict Resolution: How to Fix Common Tax Problems appeared first on Cole & Waxman Tax Services.

Every week, I have "the PFIC talk" with several clients. The conversation always hits on the "why" question. Why does the US government want to punish me for saving money and opening a kupat gemel?

At one level, the question is irrelevant. We're tax accountants, darn it, not philosophers. But nonetheless, we as humans naturally look for order and logic amidst the chaos. The demands of US tax compliance for dual US-Israeli citizens are indeed onerous (in my opinion) and difficult to cope with.

In the best case scenario, this dual citizen must avoid many common investment and savings vehicles that their non-US citizen friends and neighbors are able to freely invest in. In the worst case scenario, they're saddled with additional taxes and compliance fees. Many of these products are marketed for their preferential tax treatment in Israel, but the impact of US compliance will often turn this tax-deferred dream into a tax and compliance nightmare.

If you're looking for the TLDR, there is no satisfying answer. There's just a series of events that led to some congressmen passing legislation that is making your life in Israel (and other countries) difficult.

Note - if you want to skip the history and jump straight to practical solutions, then jump to this article: https://colewaxman.com/pfics-a-practical-guide-to-the-perplexed/

The Origin Story: From PDICs to PFICs

Before we talk about PFICs (passive foreign investment companies), let's talk about PDICs (passive domestic investment companies). I'll confess that "PDIC" is not a term that anyone uses—I just made it up. But I want to use this term to help understand the background that led some congressional subcommittee lawyers to invent the term "PFIC." Prior to 1986, "PFIC" also was not a term that anyone used.

How "PDICs" Work

Typically, the government shares in the profits of investments on a "pay as you go" basis. That is, as you earn investment income, you include this income on your annual income tax return and thereby pay your "fair share" of the profits to your benefactor known as the US government.

This is the purpose of a 1099 or K-1 form that you receive from your bank, brokerage firm, or S-corporation partnership. These forms report your investment income in the form of interest, dividends, capital gains, rents, distributions, etc. The IRS also gathers this information and will review your tax filing to confirm compliance. If you neglect to include part or all of this income, then no worries—the IRS has your back and they'll remind you by sending a CP2000 underreporting notice and also add some penalties for good measure.

But all of the above only applies to "PDICs"—financial entities that fall under the legislative and regulatory authority of the United States.

1968-1981: The Golden Era of Offshore Investing

On January 12, 1981, IRS attorney Richard A. Gordon published "Tax Havens and Their Use by United States Taxpayers - An Overview." The report was a response to the rapid growth of offshore financial activity, with U.S. direct investment in foreign corporations nearly tripling from 1968 to 1978 (from approximately $70 billion to $200 billion) and earnings increasing fourfold.

Wealthy investors were able to save on their annual tax assessments by moving their funds offshore to foreign entities that were all too eager to accommodate the wishes of their American patrons. These savings included a mix of legal and not-at-all-legal tactics.

Legal tactics might include tax deferral. Foreign entities could (and would) defer the declaration of annual investment income by using their local bookkeeping regulations. This would effectively create something similar to a traditional IRA or 401(k) that deferred taxation indefinitely until the time of withdrawal. The added value for our wealthy tax schemers was that these vehicles would not be limited by annoying regulations such as:

• Limits on deposit amounts
• Gross annual income restrictions
• Required minimum distributions
• Age-based withdrawal rules

For those looking for even higher tax savings, wealthy investors would exploit foreign entities that would simply help their clients hide their assets and income. This is otherwise known as tax evasion and is quite illegal. Al Capone couldn't beat that rap—maybe he should have parked his extra cash in the Cayman Islands too?

The Writing on the Wall

By the early 1980s, the party was clearly coming to an end. High-profile cases were making headlines:

• Leona Helmsley became the poster child for wealthy tax avoidance with her infamous quote: "We don't pay taxes; only the little people pay taxes." Her conviction in 1989 for evading over $1 million in taxes through fraudulent schemes captured public attention.
• Corporate inversions began with McDermott International's 1983 move to Panama, saving the company about $200 million in taxes by restructuring to avoid U.S. corporate taxes on foreign profits.
• Tax haven activity exploded, with about half of all international banking assets flowing through offshore centers.

The IRS's 1981 Gordon Report laid bare the scope of the problem, documenting how wealthy Americans were systematically using foreign entities to defer or evade taxes on massive scales.

1986: The Tax Reform Act Strikes Back

In the mid-1980s, the public was concerned with rising budget deficits. In 1986, the federal budget deficit clocked in at $221 billion. In today's terms, while we are approaching a $2 trillion deficit, that seems quite tame. But at the time, it was quite alarming.

Enter the Tax Reform Act of 1986 (H.R. 3838), sponsored by Democrats Richard Gephardt in the House and Bill Bradley in the Senate, and signed by Republican President Ronald Reagan. This bipartisan legislation included the creation of PFIC rules as part of a broader effort to close tax loopholes and make the wealthy pay their "fair share."

The PFIC provisions were designed to put U.S. investors in foreign passive investment vehicles on equal footing with those who invested in similar U.S. vehicles. If you wanted the benefits of U.S. citizenship and legal protections, Congress reasoned, you should pay U.S. taxes on your investment income—even if that income was generated overseas.

The Unintended Consequences

Here's where the story gets frustrating for modern expatriates and dual citizens. The PFIC rules were crafted primarily to target wealthy Americans hiding money in Caribbean tax havens and sophisticated offshore investment schemes. But the broad language of the law swept up ordinary retirement savings, insurance policies, and investment funds that are perfectly normal and legitimate in countries around the world.

Your innocent kupat gemel in Israel? It likely meets the technical definition of a PFIC because:

• It's a foreign corporation (from the U.S. perspective)
• More than 75% of its income comes from "passive" sources like dividends and capital gains
• Or more than 50% of its assets produce passive income

The result? What should be a simple retirement account becomes subject to:

• Punitive tax rates on distributions
• Interest charges calculated back to your original investment date
• Complex annual reporting requirements on Form 8621
• Professional compliance costs that can easily exceed your annual returns

The Bottom Line

The PFIC rules represent a classic case of legislation designed to catch sophisticated tax avoiders that ended up ensnaring ordinary people living normal lives abroad. While the original intent—preventing wealthy Americans from hiding money offshore—was arguably reasonable, the execution created a compliance nightmare for dual citizens and expatriates who simply want to participate in their local country's normal savings and investment vehicles.

Understanding this history doesn't make the rules any less burdensome, but it does help explain why Congress thought it was a good idea to create these rules in the first place. The wealthy tax schemers of the 1970s and early 1980s essentially ruined it for everyone else.

So the next time you're wondering why your perfectly reasonable Israeli investment account is causing tax headaches, remember: you can thank the tax avoiders of the 1980s and the congressional response that followed. Sometimes, being in the wrong place (tax-wise) at the wrong time means dealing with rules that weren't really designed for people like you.

Practical Solutions

These complications apply to kupat gemel and many other popular investment vehicles that your typical Israeli bank or investment advisor might recommend because he is not aware of US tax traps. If you've gotten this far, then you're probably wondering how you can avoid these complications or mitigate them if you're already invested in PFIC's. Stay tuned for our next installment in the PFIC series for some practical suggestions.

This article is for informational purposes only and should not be considered specific tax advice. PFIC rules are complex and fact-specific. Always consult qualified tax professionals for guidance on your particular situation.

The post US Tax Traps and Israeli Investments (PFIC’s) appeared first on Cole & Waxman Tax Services.

By I. David Waxman, EA

When a US citizen residing in Israel passes away with assets held in the United States, their beneficiaries may face an unexpected administrative hurdle: obtaining an IRS Transfer Certificate (Form 5173). This seemingly obscure document can become a critical requirement for accessing inherited assets, potentially causing delays and additional costs during an already difficult time.

The Scenario: Cross-Border Estate Administration

Consider this common situation: An Israeli resident who maintains US citizenship dies in Israel, leaving behind various American assets. These assets might include:

Investment and Retirement Accounts:

• Taxable brokerage accounts
• Traditional or Roth IRAs
• 401(k) accounts

Other US Assets:

• Real estate properties
• Bank accounts
• Life insurance policies (if payable to the estate of a US citizen).

While the decedent's estate may seem straightforward to settle, US financial institutions sometimes require proof that all federal tax obligations have been satisfied before releasing assets to beneficiaries.

Understanding the Estate Tax Exemption Threshold

The good news for most families is that the vast majority of estates won't owe federal estate taxes due to generous exemption thresholds:

• 2025: $13.99 million per individual
• 2026: Expected to increase to $15 million under the One Big Beautiful Act (OBBA)

Portability Provisions: Married couples can effectively double their exemption through the Deceased Spousal Unused Exclusion (DSUE), allowing the surviving spouse to use any unused portion of the deceased spouse's exemption.

US Citizens vs. Non-US Citizens: A Critical Distinction

The requirements and processes differ significantly based on citizenship status:

US Citizens: Regardless of residence, US citizens are subject to the same estate tax rules as domestic residents. They benefit from the full exemption threshold and can utilize all available estate planning strategies.

Non-US Citizens: Face more restrictive rules, including a much lower exemption threshold (currently $60,000 for 2025) and limited access to certain tax benefits, making estate planning more complex.

The Transfer Certificate Challenge

Here's where many families encounter unexpected complications. Even when an estate is well below the taxable threshold, US financial institutions may still require Form 5173 (Transfer Certificate) before releasing assets. This certificate serves as the IRS's confirmation that:

• All required estate tax returns have been filed
• Any estate taxes owed have been paid or adequately secured
• The transfer of assets to beneficiaries can proceed without IRS objection

The Reality Check: Banks and brokerage firms often require this certificate as a protective measure, even for estates that clearly fall below taxable thresholds. Without it, assets may remain frozen indefinitely.

The Process: What to Expect

Obtaining a Transfer Certificate typically involves several steps and can be surprisingly complex:

Professional Engagement: Most families need to engage a qualified attorney or tax professional experienced in cross-border estate administration. This specialized expertise comes at a cost, often ranging from several thousand to tens of thousands of dollars, depending on the estate's complexity.

Documentation Requirements: The process typically requires extensive documentation, including:

• Complete asset inventory and valuations
• Death certificates (often requiring apostille for international recognition)
• Probate or succession documents from Israeli courts
• Tax identification numbers and filing histories
• Beneficiary identification and documentation

Timeline Considerations: The process can take several months to over a year, particularly when dealing with international elements and coordination between Israeli and US authorities.

Form Filing: Even estates below the taxable threshold may need to obtain the transfer certificate in order to allow the brokerage or bank account to release the funds. Sometimes this requires form 706 (United States Estate Tax Return) to obtain the Transfer Certificate For estates below the threshold, filing a notarized affidavit could be sufficient. In either case, , this adds another layer of complexity and cost.

Nonresidents that are not US citizens have the lower threshold of $60,000. US assets in excess of this lower threshold would trigger the requirement to file form 706A rather than 706. This is a common scenario for Israeli investors in US real estate.

Planning Ahead: Preventive Measures

While the Transfer Certificate process cannot always be avoided entirely, proper estate planning can minimize complications:

Consider Asset Relocation: One of the most effective strategies is to liquidate US-based assets during your lifetime and transfer the proceeds to Israel or your current country of residence. This eliminates the need for Transfer Certificates entirely and simplifies the estate administration process for your beneficiaries. While this approach requires careful tax planning to manage potential capital gains implications, it can save significant time, complexity, and professional fees later.

Documentation: Maintain organized records of all US assets, including account numbers, beneficiary designations, and contact information for financial institutions.

Professional Relationships: Establish relationships with qualified cross-border tax professionals before they're needed.

Life Insurance for Non-Citizens: For non-US citizens who own US real estate and face the lower $60,000 exemption threshold, consider purchasing term life insurance to provide liquidity for potential estate taxes. This strategy can help beneficiaries pay inheritance taxes without being forced to sell property in a potentially unfavorable market.

Beneficiary Designations: Properly structured beneficiary designations on retirement accounts and life insurance can sometimes bypass probate requirements, though Transfer Certificates may still be required.

Communication: Ensure family members understand the potential requirements and have access to necessary documentation.

The Bottom Line

For US citizens living in Israel, the IRS Transfer Certificate represents an often-overlooked aspect of estate planning that can create significant administrative burdens for grieving families. While most estates won't owe federal taxes due to generous exemption thresholds, the certificate requirement persists as a procedural necessity.

The key to minimizing complications lies in advance planning and professional guidance. By understanding these requirements and preparing accordingly, families can ensure a smoother transition of assets during an already challenging time.

Important Note: This article provides general information and should not be considered specific legal or tax advice. Cross-border estate planning involves complex regulations that change frequently. Always consult with qualified professionals experienced in both US and Israeli tax and estate law for guidance specific to your situation. For personal guidance, schedule a consultation with your tax expert at Cole & Waxman Tax Services.

The post From Dust to Dust: When Estate Planning Meets Earthly Bureaucracy appeared first on Cole & Waxman Tax Services.