A precedent-setting ruling delivered in early 2026 by the Honorable Judge Aryeh Romanov sheds light on one of the most complex issues in high-net-worth wealth management: the ability to offset capital losses when the underlying assets are pledged to the Tax Authority. The case of Yosef Shaham illustrates the gap between a taxpayer's commercial need to lock in a "Capital Loss" in a specific tax year, and the bureaucratic hurdles posed by the regulator.
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Although the specific claim regarding the existence of a binding agreement was rejected, the Court created a dramatic legal opening: it halted the statute of limitations clock, effectively paving the way for future negligence claims against Assessing Officers who refuse to realize pledged assets in real-time.
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Executive Summary

• No "Gentlemen's Agreements" in Tax: The Court ruled that negotiations, drafts, or oral understandings with the Assessing Officer do not constitute a binding agreement. Without written approval, there is no deal.
• Timing of the Tax Event is Critical: The taxpayer sought to create a tax event in 2014 to offset a ~30 million NIS loss against a capital gain in the same year. It was determined that without actual realization (sale), claiming the loss is nearly impossible.
• The Statute of Limitations "Lifeline" (Section 15): Despite rejecting the lawsuit, the Judge ruled that the decade of litigation will not be counted towards the statute of limitations. Meaning: The taxpayer can now file a new, substantive lawsuit regarding the right to recognize the loss.
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The Background: The Race to Offset Losses

The Petitioner, Yosef Shaham, founder of "Eshbel Technologies," invested a massive sum of approximately 30 million NIS in a startup company, "Metrolight Ltd." Due to personal tax debts, Shaham pledged his Metrolight shares to the Tax Authority as collateral.

In 2014, Shaham generated a significant capital gain of approximately 56 million NIS from other sources. To reduce the immense tax liability, Shaham sought to execute a "conceptual sale" or an actual sale of the Metrolight shares (whose value had plummeted) to a third party for a nominal sum of only ~42,000 NIS.

The Strategic Goal: To realize the shares in 2014, recognize the massive capital loss (the difference between the 30M investment and the 42k sale), and offset it against the gains of that year (a "Tax Shield").
The Problem: The shares were pledged to the Assessing Officer, who refused to release them for sale at such a low price, arguing that the company still held future potential.
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The Legal Issue: Binding Agreement or Wishful Thinking?

The legal proceeding focused on a narrow factual question: Did the Assessing Officer consent to the sale of the shares?
The taxpayer claimed that his former attorney had reached a verbal agreement with the Deputy Assessing Officer. The Authority denied this.

The Court held it against the taxpayer that he failed to summon the attorney who conducted the negotiations in real-time to testify. Furthermore, documents showed that the Authority had not yet given a final answer by the relevant deadline ("will provide an answer by March 12, 2015"), contradicting the claim that a conclusive agreement already existed.
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The Court's Decision: A Battle Lost, A War Kept Alive

The Jerusalem District Court rejected the motion to declare the existence of an agreement. Judge Romanov ruled that the Authority's discretion in real-time—refusing to sell a pledged asset for "pennies" in the hope its value would rise—was legitimate, even if the company ultimately collapsed in hindsight.
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However, here comes the legal twist:
The Judge acknowledged that the proceedings had dragged on for a decade revolving around the question of "consent," while the substantive questions (Was the refusal to sell justified? Did the Authority's negligence cause tax damages?) were never litigated on their merits.
Therefore, the Court invoked Section 15 of the Statute of Limitations Law, which states that the period during which a case is pending in court is not counted. The taxpayer received a "green light" to file a new lawsuit attacking the Authority's refusal itself.
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Key Takeaways for Executives & Business Owners

1. Written Documentation is King: In negotiations with the Tax Authority, promises made over the phone or in hallway meetings are worthless. If you do not have a signed approval, you cannot rely on it for tax planning.
2. Do Not Rely on Procedural Arguments: The taxpayer wasted a decade trying to prove "consent." The correct legal strategy should attack the discretion of the Authority and the reasonableness of its decision in real-time.
3. Proactive Collateral Management: If you hold a pledged asset that is depreciating and you need the capital loss, you must take legal action to force realization immediately. Do not wait for the benevolence of the Assessing Officer.
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FAQ

Q: Can I offset capital losses on shares that haven't been actually sold?
A: Generally, no. The Income Tax Ordinance requires "Realization" (actual sale) to recognize a loss. However, in rare cases of "total loss" (asset value becomes zero), one can attempt to claim recognition under Section 92, but the burden of proof is high.

Q: What happens if the Tax Authority refuses to sell a pledged asset, thereby "burning" my tax shield?
A: This is exactly the opening left by this ruling. It may be possible to sue the Authority for negligence or administrative unreasonableness, claiming that their refusal to realize the collateral caused direct damage to the taxpayer (unnecessary tax payment).

Q: Does the statute of limitations stop during a trial?
A: Yes. Under Section 15 of the Statute of Limitations Law (1958), if a lawsuit is filed and subsequently dismissed (not due to res judicata), the period during which the proceeding was conducted is not counted towards the 7-year limitation. This is a critical tool for salvaging legal rights.

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