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As a US tax professional in Israel for a mainly Jewish clientele, I am faced with a moral and quasi-halachic/hashkafic dilemna for my clients. I seem to be faced with two potentially opposing values: we have fidelity to the tax law (dina demalchusa dina, gezel, etc…) and we have trying to ensure the financial success of our Jewish brothers and sisters (chasa HKB”H al mamonan shel Yisroel).
In general, I tend to err on the side honesty within tax law. I don’t believe in tax evasion and it disturbs me when I read about some of the things people do to avoid paying their share. But particularly for clients in Israel, there are some aspects of US tax law that really hit them unfairly:
1. self employed income- because of a lack of an agreement between Israel and the US, self employed individuals end up having to pay both social security tax AND bituach leumi (that’s in addition to income tax). For a small business that can be crippling.
2. Non-US investments- the IRS taxes certain non-US mutual funds at exorbitant rates… could be as much as 45% tax which is above and beyond the regular tax code and is extremely debilitating for Israeli Americans who are just trying to invest their savings in the Israeli market.
Specifically when it comes to tax laws that are almost certainly unfair, and in a situation where it is very unlikely for the IRS to catch on, would there be moral and halachic/hashkafic leeway to bend, even break, the law to help fellow Jews avoid these unfair taxes?
I’m not talking about enriching anyone on the backs of the US government or hard working taxpayers. I’m not talking about avoiding the taxes that any regular American would need to pay. It’s the double and triple tax that I’m discussing. Does Halacha require us close our eyes to this unfairness and flow these rules blindly? Are evading these taxes morally deplorable, questionable, or honorable?
I’m not a Rov or an accountant so this isn’t halachic or professional advice- just my personal opinion.
Signing your name to something that you know isn’t true, even if there’s no way you’re going to be caught is just wrong, plane and simple- there’s no two ways about it.
Being a citizen of a country entitles one to certain privileges and protections which ultimately costs the country money. While you may feel that paying taxes for the same income to the Israeli Government and then to the US Government is double paying- the respective governments look at us as their share of the costs to look out for their citizens.
Who decides what’s fair and unfair?
If your clients in Israel don’t feel like paying US income taxes, why don’t they just denounce their citizenship?
Fellow IRS agent here.
Thanks for letting me know of your dillemas.I will let my boss and colleagues know about this issue and we’ll make sure to solve it quickly, by adding extra audits and checks on Israeli American tax returns.
a good question. Maybe it is worth exploring if there are legal structures that can resolve the double taxation issue. For example, forming a corporation whether in Israel or in Us or in a 3rd party that will hold the profits. This is way beyond my expertise, I just hope that such methods are known to rich people and maybe should be shared with others also. It will a great thing both financially and hashkafically.
as to mutual funds, solution seems to be simple – just hold those investments that are tax-advantaged in your situation. There is no mitzva to hold all mutual funds in the world.
As the resident CR anti-government extremist seeing a thread called “Unfair tax evasion”
Oh boy, here we go again…
The law is the law – period, and chilul Hashem is chilul Hashem, – period. There’s no way to justify filing a return inaccurately because you don’t like the fact that there’s no US-Israel totalization agreement or how the PFIC rules work, and the chilul Hashem that will result when it’s found that Jews are coming up with reasons why the law does not apply to them is very significant.
I have a friend who is a US CPA who had to deal with a bunch of fraudulent claims of the child tax credit by Israel-resident US citizens – it got bad enough that just about anyone claiming the credit from Israel was flagged for audit, especially if the number of children seemed unrealistic to the IRS (tell them about families in Israel with 15+ children…). They don’t like the laws? As one commentator above said – renounce your US citizenship. Else, for work income, use a corporation (or an entity that elects to be treated as a corporation for US purposes), and for investment income, invest in either US mutual funds or Israeli funds that are not structured as corporations. I spoke with my CPA who explained this to me – it’s a bit of an inconvenience, and there could be some cost, but it does solve the issue.
an Israeli Yid
ok, anIraeliYid seem to confirm that incorporation helps. Could you guys flesh these solutions out so that the kahal could use them? The same about child credits.
simcha, you should start working with these people on their next year return and creating the right structure. Sanhedrin 40+ – you should always pray about the problem before it happens (Avraham near Ai)
Note that we had periods in history where Jews were unfairly targeted for extra taxation. In such cases, it might be acceptable to avoid them. In this case, this is an issue with any American abroad, so this is not an anti-Jewish gezerah.
@Always_Ask_Questions – per the advice I heard, incorporation can help, but can be expensive. In Israel, there are rules about bookkeeping and reporting for a corporation, and following these rules can requires having an accountant and certain record-keeping systems. It could be expensive enough to make it not worthwhile to avoid paying the social security tax, as the social security tax can be less than the cost of having a company!
an Israeli Yid
Happy new year, I dont believe you are an IRS agent, and neither do I believe that you have a Jewish heart. Many, perhaps even most, of these people barely make ends meet and you are worried about the coffers of the criminal US government that spends billions on gender-mutilating “programs” for kids, medical help for illegals and education for their children, and on thousands of other non-sensical and non-essential programs with money the government steals from the middle class and also prints with no backing. The US government is at this point a criminal entity that is robbing hardworking Americans of their money.
Why not be proactive? Educate your clients (and the public) about how to avoid these problems! If you can invest 500,000nis or more, you can get in the Israeli market with an investment firm without running in to the tax issue. Otherwise, invest in US funds. I presume the self employed individual can find a work-around and get himself / herself technically employed – no?
I sympathize with those that are struggling to make ends meet but not paying taxes that are due is simply stealing. Signing your name to something that isn’t true is simply lying.
Like I wrote earlier- if someone doesn’t want to pay US taxes they’re more than welcome to renounce their citizenship and give up on all the benefits that come along with being a US Citizen.
It makes no difference if you agree with the policies of the US Government or how they spend the money they collect in taxes. If it bothers you go ahead and vote for someone whose policies are in line with your values.
(I was מקבל on myself this past ראש השנה to not post anything political so I’m not agreeing or disagreeing with your last sentences.)
I didn’t read the follow up comments to see if the following point was made yet, but the Halacha of dina demalchusa dina does NOT apply to these cases, since these people do not live in the US. Therefore US laws aren’t halachicly binding upon them.
Maybe you can start by asking your clients what their Rabbis pasken about this? It would be interesting to see the range of opinions.
As far as I know, there might be a heter to cheat oppressive governments, especially when there are laws targeting Jews, but not of democratic governments. But maybe there are other views. I am surprised that some people ^ just quote their feelings to allow something like that.
Dr. Pepper, i guess the early Americans were criminals for protesting against British taxation… and for daring to fight for independence, they sure broke many laws at that time… I can see people like you taking the side of the British monarchy because the “law is the law”… im not saying it’s right to simply cheat and not pay taxes randomly, im saying that some taxes cripple small businesses and can financially choke middle class families and due to the US government irresponsible tax laws and irresponsible spending, they have a right to put there well-being before a corrupt government’s corrupt “laws”.
Dr. Pepper, here’s a relevation of a tiny portion of the US government’s ridiculous spending:
LEFT FLIPS OUT: Trump Shuts USAID Agency; The Shocking Waste Of Money Starts Being Exposed
I’m very impressed with the Trump administration trying to clean this up, but i doubt after the Trump administration the next administration will continue down this path. The fact is that the government is corrupt, they are cleaning up now, let’s see what the future brings…But at this time talking about following every law of a corrupt government that would cause severe hardship to many individuals is like condemning the black market trade under the communist rule where people had no choice but to do certain “illegal” things to survive. To tell people to give up their rights to American citizenship is ridiculous, they dont have to give up their rights just because the government is abusing the rights of US citizens. When the government cleans up their act, stop their overspending and borrowing money they cannot ever repay and enact fair tax laws for every single class of citizens, particularly the middle class that can get crushed, then every US citizen would need to step up to the plate and follow every single tax law. Until then, these individuals, who are simply trying to survive financially, cannot be judged.I wrote earlier that there are benefits to being a US Citizen. The US Government is supposed to look after their citizens all over the world. This is an exposure for the government and it is an expense- regardless of whether you ever use it or not. Expecting the government to be there for you while cheating on your taxes (regardless of if you’re in the country or not) is stealing. I believe stealing isn’t covered by the Halacha of dina demalchusa dina.
(I’d feel differently if the US had, for example, a rule that its citizens can’t drink alcohol no matter where in the world they are and you decided to drink alcohol out the country where the host country has no rule against it.)
Like I keep writing- the US has benefits for its citizens all over the world. Expecting to get those benefits (or even just being covered by those benefits) while cheating on your taxes is stealing. If you have a problem with the taxes, you have the option to leave and renounce your citizenship or vote out the politicians collecting taxes you don’t agree with to pay for things that you don’t want them to spend money on. (You can also fight for your independence.)
My point though, and I’ll write it again, is that expecting to get the benefits from the US Government while not contributing what they tell you you owe- is stealing.
I agree with you 100% that the government is wasting ridiculous amounts of money but that doesn’t give you the right to steal. Would you say it’s ok to steal from a grocery store that donates a percentage of purchases to something you abhor? Hopefully not. You have the right to either pay for your groceries (knowing where some of the profits are going) or shopping elsewhere. Same with citizenship.
But I disagree with you that someone stealing from the government can’t be judged. (And by the way- there will NEVER be a tax code written that is fair to everyone.)
Yes, in my opinion it is stealing. They can tax any amount that they want and if you want to be a citizen (or resident) you have to pay that. If you don’t want to pay taxes you’re welcome to leave and give up your citizenship or vote out the current politicians. But until then, if you’re a US Citizen and getting the benefits of citizenship you’re stealing if you cheat on your taxes.
Dr. Pepper you write, “They can tax any amount that they want…”
Well, I disagree with that. That is an abuse of power.
Kings and queens also felt they could do what they want, but there were revolutions against those monarchies. Were the citizens who rebelled against tgem “break the laws” of their country? You havent responded to my point against the colonists engaging in “illegal activities” against the British king. Was their not paying taxes to the British monarchy “stealing”? There are many people supporting their governments committing atrocities against innocent people “because those people broke the laws” of their country. Political prisoners, political murders, etc. many governments and leaders get away with committing crimes because there are millions of citizens supporting the laws these criminal leaders in power create.
No, our government cannot “tax any amount they want”. They do not have a right to do that.
phil: i guess the early Americans were criminals for protesting against British taxation
One difference is that Brits did not give Americans an option to quit Britain, they came to collect those taxes.
As Dr Pepper said, you can renounce your US citizenship and live freely and honestly.
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