February 14, 2003
The Honorable John Snow
Secretary of the Treasury
Department of Treasury
1500 Pennsylvania Avenue
Washington, DC 20220
Dear Secretary Snow,
I am deeply concerned that the Internal Revenue Service's consideration of a slightly modified version of a Clinton-era regulation (REG-133254-02) that will require U.S. banks to report the deposit
interest they pay to nonresident alien account holders.
The regulation would undermine 80 years of existing law and clearly contradicts Congress' goal of attracting capital to the U.S. economy. Nonresident alien depositors would surely transfer their funds to Zurich, Hong Kong, London, and other jurisdictions if this regulation is finalized. America could suffer a substantial loss of capital, and our banks would be adversely impacted, which is why the Chairman of the Federal Deposit Insurance Corporation has condemned the regulation.
I also believe the enactment of this regulation would hinder President's tax reform agenda. Almost all tax reform plans are based on common principles, including the fact that income should not be
taxed more than one time. Another key principle is territorial taxation, the common sense notion that governments do not try to tax income earned in other nations. Yet the IRS regulation is explicitly designed to
help foreign governments impose a second layer of tax on income earned in America, and therefore is at odds with the President's pro-tax reform philosophy.
I believe that this regulation is completely contrary to America's economic interests, and I urge its immediate withdrawal. Thank you for your time and consideration
James M. Inhofe
United States Senate