Center for Freedom and Prosperity
For Immediate Release
Wednesday, February 25, 2004
Warning that Interest-Reporting Regulation Could
Cause Capital Flight, Istook Condemns IRS for
Legal and Regulatory Abuses
February 25, 2004 (Washington, DC) – Today, the Center for Freedom and Prosperity praised Oklahoma Representative Ernest Istook for his leadership in the fight to turn back the proposed Internal Revenue Service (IRS) regulation to require the reporting of bank deposit interest paid to nonresident aliens (REG-133254-02). Rep. Istook, the chairman of the powerful Appropriations Subcommittee that determines the budget for the Treasury Department and the IRS, sent a letter to Treasury Secretary John Snow asking him to review the proposed rule. Chairman Istook states his opposition to the proposed rule and shares his concern with the "procedural handling of this issue."
Congressman Istook wrote, "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. . . . 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."
praised Congressman Istook for his action. "The 35 member organizations of the Coalition for Tax Competition applaud
Chairman Istook's leadership on this important issue," said Andrew Quinlan, president of the Center for Freedom and Prosperity. "Rep. Istook's comments should get the full attention of the bureaucrats at the Treasury Department since his subcommittee oversees the Agency's funding," added Quinlan.
Daniel Mitchell of the Heritage Foundation remarked that, "The IRS should never propose regulations that hurt the US economy unless the law unambiguously requires such action. The bank deposit interest-reporting regulation is the worst of all possible worlds: A regulation that will hurt the economy and a regulation that flouts the law." Veronique de Rugy of the Cato Institute added, "Bureaucrats at the IRS and Treasury Department should not be allowed to propose regulations based on personal ideology. The interest-reporting regulation should be withdrawn."
More than 130 lawmakers and organizations have denounced the proposed regulation, including 18 Senators, 72 Congressmen and more than 40 Public Policy organizations. Visit the Center's dedicated web
page for additional information and a complete list of the opposition to the proposed regulation.
Link to the full text of Chairman Ernest Istook's letter:
PDF version of the Chairman's Letter:
Rep. Ernest Istook's Web Page:
CFP's dedicated web page on withdrawing the proposed IRS regulation:
Complete list of opposition to regulation:
Text of the Istook letter:
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.
Cc: Vice President Richard Cheney
CEA Chairman Greg Mankiw
NEC Chairman Steve Friedman