WASHINGTON, March 7 (Reuters) - The U.S. Internal Revenue Service has revoked access to an amnesty program for some U.S. taxpayers with accounts at Israeli banks who were already taking part in it, said three lawyers representing the customers on Thursday.
In an unusual move that could scare others away from the program, the IRS has told dozens of customers of Israel's Bank Leumi they have been disqualified from participating, said lawyers for the customers.
The program, revived in January 2012, has helped the IRS collect billions of dollars in tax revenues. It allows U.S. clients of foreign banks to step forward, tell the IRS about hidden offshore holdings and pay their back taxes, in exchange for possible government leniency.
An IRS spokesman said in a statement: "There are a number of reasons why a taxpayer may be disqualified from participating in the IRS' offshore disclosure program." The spokesman said the IRS cannot comment on specific cases.
Some clients of Israel's Mizrahi Tefahot Bank have been disqualified from the program, as well, said Edward Robbins, a lawyer with Hochman, Salkin, Rettig, Toscher & Perez, who is representing those clients.
Some of the taxpayers whose participation in the program was ended had already paid back taxes, the lawyers said.
The IRS has sent two-sentence form letters to those being disqualified that say "upon further review it has been determined that your client is declined" from the program, according to a letter from September obtained by Reuters.
"This is a very disturbing development," said Josh Ungerman, a partner with law firm Meadows, Collier, Reed, Cousins, Crouch & Ungerman LLP who represents clients in the amnesty process.
"The formal voluntary disclosure program is in danger of becoming extinct through non-use," he said.
Bank Leumi, Israel's second-largest lender, has urged U.S. clients to disclose offshore account information to U.S. authorities, who are investigating Leumi and other banks.
Robert McKenzie, a partner with law firm Arnstein & Lehr LLP, who is representing a client with more than $1 million in a Bank Leumi account, said program participants were misled. He said he received a disqualification letter from the IRS on behalf of his client on Wednesday.
A U.S. crackdown on Americans using offshore banks to avoid taxes began with Swiss banks, but has widened to Israel.
In January 2012, the IRS revived the voluntary disclosure program, which remains open. Two previous voluntary disclosure programs, in 2009 and 2011, brought in more than $4.4 billion in taxes from tens of thousands of tax evaders, the IRS said.