While Amnesty has long been a bête noire of Israeli officials for its reports on rights abuses in the occupied Palestinian territory, the trigger for what would be unprecedented steps is the NGO's support for a boycott of produce made in Israeli settlements in the occupied West Bank.
Israel's settlements are a violation of international law, a position shared by the United Nations Security Council, the International Court of Justice and the High Contracting Parties to the Fourth Geneva Convention.
This summer, Amnesty International launched a new campaign calling for a ban on settlement-made products, with Secretary-General Salil Shetty urging the international community to "put an end to the multimillion dollar profits that have fuelled mass human rights violations against Palestinians".
Now, officials in Israel's Finance Ministry are reportedly close to terminating the tax-exempt status of the local branch, and leave the organisation open to civil lawsuits by declaring Amnesty in violation of 2011 legislation that prohibits support for boycotts.
An Amnesty spokesperson cited by right-wing news outlet Arutz Sheva said: "We do not respond to rumours or leaks. We expect that in a legal case as important as this, the Finance Ministry will send a formal, orderly request based on established rules, at which point we will issue a response."
Speaking to Haaretz, Amnesty spokesperson Gil Naveh said: "This story goes beyond one tax break or another. It is part of a systematic persecution of human rights organisations and activists who criticise the Israeli government for its actions inside Israel and the occupied Palestinian Territories."