Us Person Israeli Investment Check

US-Person Israeli Investment Check

Legal notice

This is a free information tool operated by an artificial intelligence model. It applies published statutory tests and the criteria in a published Revenue Procedure to product features you describe, and produces a screening table. It does all of this without the involvement, review, or approval of a licensed tax adviser, accountant, or attorney.

It is not tax advice, it is not a filed return, and it is not a professional opinion. It does not, and cannot, give you a final classification of any product. The IRS has never issued guidance naming Israeli savings products, whether a particular arrangement is a foreign trust or a PFIC for US purposes turns on that specific plan's terms and on that specific fund's holdings, and practitioners genuinely differ. What this tool produces is a preliminary screening worksheet: which test a product appears to pass or fail, and the question to put to a preparer. It does not read your plan documents, does not examine any fund's actual holdings, does not make or evaluate any election, and does not prepare any form.

An AI model can err, omit data, or present a wrong conclusion. Any text it produces is an automatic draft for personal organisation only and must never be submitted to any authority as it stands.

Responsibility for reporting and for paying tax is yours, the binding assessment is made by the tax authority concerned, whether the Israeli Tax Authority or the IRS, and representation before a tax authority is reserved to those permitted to do so by law. This tool is not a substitute for advice that takes into account the particular data and needs of each person. Criteria and thresholds change, so verify each one against the primary sources under Reference Links before relying on it.

Problem

An Israeli employee is enrolled by default into exactly the products the US tax code treats worst. A keren hishtalmut is tax free in Israel and may be a reportable foreign trust in the US. A kranot neemanut or a TASE ETF is an ordinary savings choice in Israel and is very likely a PFIC, taxed under a punitive default regime designed to remove the benefit of deferral. Most people discover this years later, holding a decade of unreported positions, because nothing in the Israeli sales process mentions it and most online guidance either overstates the problem or waves it away.

Instructions

The output of this skill is a screening table plus a list of questions for a preparer. It is never a final classification. Say so at the start and at the end.

Stage 1: Inventory what the user actually holds

Ask for each holding by name and record five things. Do not proceed on assumptions, because the classification turns on precisely these details:

Stage 2: Treat the two questions as separate

This is the structural point users and guides both get wrong. There are two independent regimes and a product can fall in one, both, or neither:

• Is it a PFIC? A question about a foreign CORPORATION whose stock the user owns. Leads to Form 8621.
• Is it a foreign trust? A question about an ARRANGEMENT the user is treated as owning or transacting with. Leads to Forms 3520 and 3520-A.

Never answer one and present it as the answer to the other. Run both.

Stage 3: The PFIC screen

A foreign corporation is a PFIC if it meets either test:

A pooled investment fund holding securities meets both comfortably. That is why an Israeli kranot neemanut, a TASE-listed ETF, and most Israeli pooled funds are treated as PFICs by practitioners as a matter of course. Note that this is an inference from the tests applied to what such funds hold, not an IRS determination about any named Israeli fund.

The de minimis filing exception, which is widely missed. Form 8621 filing is excepted where the PFIC stock the user owns is worth USD 25,000 or less, or USD 50,000 or less on a joint return, on the last day of the tax year and on any day they disposed of stock. Check this before telling anyone they have a filing obligation. A modest TASE ETF position often falls under it.

Two cautions on the exception. It is an exception to FILING Form 8621, and it does not change how a distribution or a gain is taxed. It also does not affect any other duty, so a holding under the threshold can still be reportable elsewhere.

Why the default regime is the problem. A shareholder of a section 1291 fund is subject to special rules on an excess distribution, and the ENTIRE gain on disposing of a section 1291 fund is treated as an excess distribution. That default allocates the amount back across the holding period with an interest charge, which is what removes the benefit of deferral. There are elections that avoid it, a qualified electing fund election and a mark-to-market election, but a QEF election requires information from the fund that Israeli funds generally do not produce for US holders. Explain the shape of this and route the election to a preparer. Do not recommend an election.

Stage 4: The foreign trust screen and the Revenue Procedure 2020-17 exemption

First state the limit of the exemption, because it is the most misreported point in this domain: Revenue Procedure 2020-17 provides an exemption ONLY from the section 6048 information reporting requirements. It does not change how anything is taxed. A product can be exempt from Forms 3520 and 3520-A and still produce currently taxable income.

Also state the gating condition: only eligible individuals, generally those already compliant with the income tax obligations relating to the trust, may rely on it. Someone who has never filed cannot reach for this exemption as a first move, which is why the catch-up question in us-israel-dual-tax-navigator usually comes first.

Then walk the criteria against the product.

Section 5.03, tax-favored foreign retirement trust. The trust must operate exclusively or almost exclusively to provide pension or retirement benefits, and must be locally tax favored, reported to the local tax authority, funded only from earned income, and limited to USD 50,000 or less annually or USD 1,000,000 or less on a lifetime basis. Criterion 5.03(5) is the one that decides most Israeli cases: withdrawals must be conditioned on reaching a specified retirement age, disability, or death, or penalties must apply to earlier withdrawals. The carve-out is narrow and covers only in-service loans, hardship, education, or a primary residence.

Section 5.04, tax-favored foreign non-retirement savings trust. The trust must operate exclusively or almost exclusively to provide MEDICAL, DISABILITY, or EDUCATIONAL benefits, and contributions must be limited to USD 10,000 or less annually or USD 200,000 or less lifetime.

Apply these literally. A general-purpose savings vehicle is not within 5.04 merely because it is not a pension, because 5.04 has its own purpose test.

Stage 5: Where each Israeli product usually lands, and why

Present this as the analysis and its reasoning, never as a ruling. The "why" column is the part that matters, because it is what a preparer will actually test against the plan terms.

The keren hishtalmut row is the reason this skill exists. Give the user the two specific criteria it appears to fail, not a verdict, so they can put a precise question to a preparer rather than a vague worry.

Stage 6: Produce the deliverable

Output one table per holding with four columns: the product, the PFIC screen result with the test that decided it, the trust screen result with the criterion that decided it, and the single question to ask a preparer. Then list what you could not determine and what document would settle it, usually the plan terms or the fund's holdings breakdown.

Close by stating that none of this is a classification, and that the exemption criteria are applied to the user's description of the product rather than to the plan document.

Do NOT use this skill for

• Obtaining a final or relied-upon classification of any product. This skill screens.
• Annual filing mechanics, deadlines, FBAR, Form 8938 thresholds, or the exclusion versus credit choice. Use us-israel-dual-tax-navigator.
• Israeli-side taxation of these products, which is a different and generally far simpler question. Use israeli-pension-advisor or israeli-tax-returns.
• Self-employment tax. Use american-freelancer-israel-tax.
• Choosing between a QEF election and a mark-to-market election, or making either.
• Advice on whether to buy, sell, or switch any product. That is investment advice and this skill does not give it.

Recommended MCP Servers

Bundled Resources

Gotchas

1. Presenting the Revenue Procedure 2020-17 exemption as a tax exemption. It exempts from section 6048 information reporting only. An agent that tells a user their pension is "exempt" without that qualifier has told them something false about their tax.
2. Treating the PFIC and foreign-trust questions as one question. They are separate regimes with separate forms. A product can be neither, either, or both.
3. Skipping the de minimis exception. USD 25,000, or USD 50,000 on a joint return, excepts the Form 8621 filing. Asserting a filing duty without checking it manufactures work and alarm.
4. Applying 5.04 to any non-pension savings product. Section 5.04 has its own purpose test, limited to medical, disability, or educational benefits. A general savings vehicle does not qualify just because it failed 5.03.
5. Stating that keren hishtalmut IS a foreign trust. No IRS guidance says so. The honest output names the criteria it appears to fail and sends the question onward.
6. Forgetting the eligibility gate. Only individuals already compliant on the related income tax may rely on Revenue Procedure 2020-17, so a never-filed user cannot lead with it.
7. Converting contribution limits at the wrong rate or not at all. Every criterion is in dollars while every contribution is in shekels, and a product can sit on either side of the limit depending on the year's rate.

Reference Links

Troubleshooting