[PDF Copy of the Letter]
April 22, 2004
The Honorable John Snow
Secretary of the Treasury
Department of the Treasury
1500 Pennsylvania Avenue
Washington, DC 20220
Dear Secretary Snow,
We are writing to express our concerns about a proposed Internal Revenue Service regulation (REG-133254-02) that would force U.S. depository institutions to report deposit interest payments made to certain
nonresident aliens. Not only does this regulation seem burdensome and unnecessary but also potentially harmful to the current economic recovery and future efforts at tax reform.
The IRS estimates that this
regulation would force affected U.S. depository institution to spend 500 man-hours annually on compliance.
Industry estimates are even higher. Yet, because interest income earned on non-resident alien deposits has always been and continues to be exempt from U.S. taxation, it is not readily apparent what enforcement or tax collection objective is served by requiring this income to be reported to the IRS.
As you are well aware, the decision not to tax non-resident alien deposits has been a conscious one over the past 80 years. On every occasion that Congress has examined this issue, it has decided that the
benefits from attracting capital to the U.S. exceed the revenue that would result from taxing that income.
Certainly, the benefits of attracting capital to the U.S. also exceed any benefit that would result from "exchanging" this information with other nations. Now is certainly not the time to risk significant capital flight.
Finally, the proposed regulation is contrary to fundamental reform of our tax system. We are currently considering several changes to our corporate income tax system that will create a more territorial
system, in which income can be taxed only by the government of the country in which it is earned. By exchanging information about non-resident alien deposits with other countries so that they may impose a tax
on this income, the IRS would be moving in exactly the opposite direction from fundamental tax reform.
We thank you for your time on this matter and urge you to permanently withdraw this misguided,