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Center for
Freedom and Prosperity
 P.O. Box 10882
Alexandria, Virginia

United States House of Representatives

[PDF Version]

February 11, 2004

The Honorable John Snow
Secretary of the Treasury
Department of Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

Dear Secretary Snow,

In the final days of the previous Administration, the IRS proposed a regulation that would force banks to report the interest paid to nonresident alien depositors. Like many of my colleagues, I am not sympathetic to the regulation, either as first proposed or as slightly modified last summer. But I am writing today to express my concerns about the procedural handling of this issue.

My concerns are twofold. First, I am troubled by the fact that the IRS is using a regulatory edict to overturn existing law. For more than 80 years, Congress has sought to attract capital to the US economy by neither taxing nonresident alien bank deposit interest nor requiring the reporting of such income. The IRS has the authority to urge that this law be repealed. The IRS has the authority to argue that US financial institutions should incur costs to help enforce foreign tax law. The IRS even has the right to claim that the economy would be unharmed if capital fled from the US banking system which is very likely if the regulation ever goes into effect. The IRS does not have the right, however, to unilaterally change the law.

Second, I am equally concerned that the IRS has ignored legal requirements that are designed to improve the outcome of the regulatory process. It appears, for instance, that the IRS made no effort to comply with either Executive Order 12866, OMB Circular A-94, or the Regulatory Flexibility Act. These safeguards are an important element of any well-functioning regulatory system, yet the IRS made no effort to explain why there should be no scrutiny or analysis of a proposal that could drive tens of billions of dollars from the US economy.

I am not seeking to debate whether the United States should help oppressive governments track down flight capital. My goals are much more limited ensuring the integrity of the regulatory process. An agency should not propose a regulation that overturns existing law. And when agencies do propose regulations designed to enforce the laws enacted by Congress, those agencies should comply with all procedural requirements.

I respectfully urge you to review whether the IRS's interest reporting regulation meets these important standards.


Representative Istook


CC:  Vice President Richard Cheney
         CEA Chairman Greg Mankiw
         NEC Chairman Steve Friedman

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