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December 18, 2002
The Honorable Pamela Olson
Assistant Secretary for Tax Policy
Department of Treasury
1500 Pennsylvania Avenue, N.W., Room 3112
Washington, DC 20220
RE: Guidance on
Reporting of Deposit Interest Paid to Nonresident Aliens, 67 Fed. Reg. 50,386 (Aug. 2, 2002); CC.Dom:ITA:RU(REG-133254-02)
Dear Assistant Secretary Olson:
The Internal Revenue Service is considering an
amendment to its rules that would require financial institutions to file a Form 1042-S with the Service when interest is paid to any nonresident alien in 15 designated countries with a separate copy to the
payee. My objection to this proposal already is on record as part of a joint letter from members to the Department.
I am now writing individually to explain my concerns that the regulation may have unintended and unexamined consequences on small businesses.
The record in this rulemaking reveals that non-resident aliens
have deposits of approximately $1 trillion in United States banks and other financial institutions. Many bankers expect that at least one-third of the foreign deposits (presumably those from the 15 countries
for which the depositary institution must file a Form 1042-S) or more than $300 billion dollars will be shifted to banks in London, Hong Kong and other overseas venues that do not require the reporting of interest
of non-resident aliens to a governmental entity.
This transfer of capital out of the United States could not come at a worse time. Small businesses play a vital role in the American economy and
are poised to create the majority of new jobs in the upcoming economic recovery. However, small businesses will not be able to play a role in any expansion if they are starved for capital.
Taking hundreds of billions of dollars out of United States depositary institutions only will exacerbate the difficulties that small businesses face in obtaining funds to finance growth and expansion.
The
Department and the Service should examine the consequences of making this change on the economy and particularly on the ability of small businesses to obtain necessary capital.
I firmly believe that, after due consideration of the impact on the economy, the Department and Service will find that this minor "policy" change is ill-conceived and should be tabled.
Sincerely,
Donald A. Manzullo
Chairman
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