October 18, 2002
Alexandra K. Helou
Office of Associate Chief Counsel (International).
Internal Revenue Service
P. O. Box 7604, Ben Franklin Station
Washington, DC 20044
Dear Ms. Helou,
I am deeply concerned that the IRS is allowing personal ideology to interfere with the lawful conduct of its regulatory
responsibilities. Specifically, the Service recently re-issued a slightly modified version of a Clinton-era regulation that will require U.S. banks to report the deposit interest they pay to nonresident alien
This proposal is an abuse of the regulatory process. The IRS is supposed to promulgate regulations to help enforce the laws approved by Congress and signed by the President. But this
regulation overturns existing law and clearly flouts Congress' goal of attracting capital to the U.S. economy. Moreover, the IRS failed to perform a legally required cost/benefit analysis. Indeed, the Service
actually had the nerve to claim that this rule is an interpretive regulation and thus exempt from important parts of the law governing regulatory review.
Equally important, I am worried that this regulation
will create a roadblock for the President's tax reform agenda. Almost all tax reform plans are based on key 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 U.S.-source income.
There is no way to fix this regulation. It is completely contrary to existing law and it would adversely impact America's economic interests. I urge its immediate withdrawal.
Cc: Treasury Secretary Paul O'Neill
CEA Chairman Glenn Hubbard
Economic Advisor Larry Lindsey