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Tax-News.Com

New York, 09 February 2001

IRS Wants US Banks To Report Interest Paid To Foreigners

by Mike Godfrey

     The US Treasury has issued a proposed regulation that would compel banks in the US to report all payments of interest made to non-resident aliens (ie any foreigner with a bank account in the US, other than residents). It gives as its reasons that it will help to deter US citizens from falsely pretending that they are foreign (to avoid US withholding tax at 30%) and that it has treaty obligations under double tax treaties to provide information to foreign countries when requested to do so. The Treasury says it does receive such requests, which it cannot service.

     This regulation, which is not required by any Congressional legislation, is one of the final acts of the dying Clinton administration, rushed out in the last few days when it became clear that George Bush was going to be President.

     There is a hearing on the proposed regulation, to be held in Washington on March 21st, and comments can be submitted in advance of the hearing. The regulation can be downloaded from http://ftp.fedworld.gov/pub/irs-regs/12610000.pdf

     In the statutory impact assessment which accompanies the regulation, the IRS says that it will affect 2,000 institutions, and that they will need 15 minutes each a year to service it. 

     Pause for incredulous laughter.

     The Centre for Freedom and Prosperity in Washington has attacked the regulation in no uncertain terms.

     Andrew Quinlan, the Center's President, condemned the agency, noting that, "Major changes in tax policy should be decided by elected officials, not bureaucrats seeking to advance an ideological agenda of worldwide taxation based on information exchange."

     Quinlan noted that: "The last time lawmakers visited the issue, it was decided that America's economic interests were best served by allowing this income to remain untaxed."

     The Center for Freedom and Prosperity also criticized the IRS for trying to hinder fundamental tax reform. According to Quinlan, "It is increasingly clear that a territorial tax system is both simple and pro-growth, which is why major tax reform plans such as the flat tax incorporate this feature. But the IRS wants to take us further down the path to a worldwide system, which is based on governments being able to tax income earned outside their borders."

     The Centre intends to mount a campaign against the proposed regulation. Stating that, "American tax laws should be based on what is best for the United States, not what is best for foreign tax collectors," he announced that the Center would encourage concerned individuals to register their disapproval during the public comment period. This can be done, he said, through the IRS website at http://www.irs.gov/cgi/regs/fixstring/ PROD?Guidance on Reporting of

     The Centre for Freedom and Prosperity's web site is at www.freedomandprosperity.org

 

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