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Freedom and Prosperity
 P.O. Box 10882
Alexandria, Virginia
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CF&P Press Release,  May 1, 2003

For Immediate Release
Thursday, May 1, 2003
202-285-0244
 
www.freedomandprosperity.org

Treasury Official Misrepresents Clinton-Era IRS Regulation in Testimony to Small Business Committee

Washington, DC (May 1, 2003) – Leading taxpayer activists today criticized Pam Olson, the Treasury Department's Assistant Secretary for Tax Policy, for inaccurate testimony to the House Small Business Committee. Specifically, Ms. Olson made several incorrect assertions about a Clinton-era proposed IRS regulation that would require financial institutions to report deposit interest paid to nonresident aliens.

Assertion: In her testimony, Ms. Olson stated, "The original proposed regulation, which was issued in January of 2001, was withdrawn and re-proposed in July of 2002 following thorough consideration by the Treasury Department and the IRS of all the comments received on the January 2001 proposed regulation. The regulation as re-proposed was narrowed significantly in scope."

Fact: The only meaningful difference between the original regulation and the revised regulation is that the new version applies to depositors from a narrower range of nations. Yet none of the public comments and public hearing testimony sought this change. Instead, there was a nearly unanimous call for the regulation to be withdrawn because it is bad tax policy that is in conflict with more than 80 years of existing law. According to Andrew Quinlan, President of the Center for Freedom and Prosperity, "Ms. Olson testified that '…IRS regulations do not make the laws that apply to small businesses or any other taxpayer. Congress does that by amendments to the Internal Revenue Code,' yet she is pushing a Clinton-era regulation that flouts existing law and undermines the President's goal of making America's economy more competitive."

Assertion: Ms. Olson also stated in her testimony that, "This information reporting is intended to improve compliance with U.S. tax obligations, and will not unduly burden U.S. banks."

Fact: This also is not true. The United States does not tax this income, so there is no compliance benefit. Daniel Mitchell, a Senior Fellow at the Heritage Foundation, explained that the IRS is willfully disregarding the Regulatory Flexibility Act. Mitchell remarked that, "Ms. Olson admitted in her testimony that the IRS generally must prepare a regulatory flexibility analysis for regulations that burden small businesses, but her claim that an analysis is not necessary since the regulation will not have a significant economic impact is preposterous. If finalized, the regulation could drive more than $100 billion of capital from the U.S. economy and impose a heavy regulatory burden on small banks."

Assertion: Finally, Ms. Olson asserted that, "Enhancing appropriate information exchange pursuant to our bilateral tax treaties in appropriate circumstances subject to the strict protections of the confidentiality of taxpayer information is an important means of reducing the opportunities for tax evasion through use of offshore accounts."

Fact: This assertion actually may be true, but it has nothing to do with the proposed IRS regulation. Neither Treasury nor the IRS has provided any evidence that U.S. taxpayers are hiding money in the 15 nations covered by the regulation. Indeed, it is likely that this unilateral regulation will undermine our ability to expand our network of bilateral tax treaties. Veronique de Rugy of the Cato Institute echoed the concerns of many members of Congress, declaring, "This regulation should be withdrawn. It is bad tax policy, bad economic policy, and bad regulatory policy. Hopefully, Treasury Secretary Snow will rein in Department officials who put personal ideology ahead of the law and disregard America's national interests."

Since January 17, 2001, when the Clinton Administration first proposed the IRS's regulation to report interest paid to nonresidents, the Center for Freedom and Prosperity and the Coalition for Tax Competition have been working to convince Treasury to withdraw the regulation. Please visit our dedicated website on the IRS Interest Reporting Regulation, which can be found at http://www.freedomandprosperity.org/update/irsreg/irsreg.shtml. This web page has more information on the regulation and includes the letters of opposition to the regulation submitted by more than 100 lawmakers and public policy leaders.

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___________________________________________________

Center for Freedom and Prosperity
P.O. Box 10882
Alexandria, Virginia 22310
Phone: 202-285-0244
www.freedomandprosperity.org
cfp@freedomandprosperity.org

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