Tax report: Sources of income

By MEIR NUSSBAUM
May 21, 2018 21:05
2 minute read.
US tax form

US tax form (illustrative). (photo credit: INGIMAGE)

In recent days, many Israeli residents have received a request to fill out a personal data report and a declaration of sources of income in Israel and abroad (Form 5329). Submitting these requests is another round of the Tax Authority’s trend to expand the circle of reporting that began, this way, in 2014.

Generally, the recipients are persons without active tax files in Israel, but who have assets in Israel, financial activities and/or are traveling abroad more frequently than the average person.

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It is very important to respond to these requests. A correct response can easily bring an end to this saga, while incorrect actions can lead to a long and ongoing saga that is often ineffective.

Many of the applicants are “veteran returning residents” or “new immigrants” who, by virtue of the law, are not obligated to report and pay taxes on their income from sources abroad. In such cases, it is very important to keep the rights granted by law (and not to report income and/or assets abroad), but from the other side it’s also very important to be sure that all the assets and income generated in Israel are reported duly and to spread the full facts indicating that the person is a “veteran returning resident” or “new immigrant.” In certain cases, when there is concern about the status of the person, the status must be carefully examined before submitting the report.

Another group of people to whom the applications were referred are individuals with a number of real estate assets, which, in light of the data available to the tax authorities, do not appear to report income from these assets.

In this case, the modus operandi is very important. It should be emphasized that in certain cases (such as in the case where the only unreported income is from rentals) the tax payment must be made immediately. In such cases, going to a voluntary disclosure process is not the right thing.

According to a circular published by the Income Tax Authority in 2014, if the sole unreported income is from the rental of a residential apartment, the default can be removed by paying the lower percentage of 10% for a period of seven years.



This action requires legal representative, but is efficient, quick and usually removes the criminal threat. Choosing the way of voluntary disclosure in these cases is ineffective, since the granting of immunity from a criminal proceeding is not possible. The Income Tax Investigations Department does not grant immunity from criminal proceedings if the applicant has received a request for a declaration under Form 5329, since the Income Tax claims that the person does not meet the conditions of the voluntary disclosure procedure.

In other cases, when there are additional reporting failures, strategic thinking must be carried out in order to reach a situation where, on the one hand, the default will be removed as soon as possible and, on the other hand, the rights of the person to whom the request was sent will be preserved and exploited in the best possible manner.

Either way, any person who receives such a request must plan his response and the strategy in which he should act optimally.

The writer is a tax specialist at Nussbaum & Co Law firm


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