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IRS’s Interest Reporting Rule

Selected Comment Letters on the IRS's Interest Reporting Regulation

Excerpts and Web Links:

Federal Gov't             Financial Institutions               Public Policy Groups

Federal Gov't

Office of Advocacy of the U.S. Small Business Administration

Federal Deposit Insurance Corporation (FDIC)

 

Financial Institutions

American Bankers Association –Mark R. Baran

Conference of State Bank Supervisors – Neil Milner (11/14/02)

Conference of State Bank Supervisors – Neil Milner (4/23/04)

Credit Union Affiliates of New Jersey – Russell R. Clark

Credit Union National Association – Mary Mitchell Dunn

Florida International Bankers Association

The Independent Community Bankers of America -- A. Pierce Stone

Institute of International Bankers – Lawrence R. Uhlick

National Association of Federal Credit Unions – Fred R. Becker

Navy Federal Credit Union – B. L. McDonnell

New Jersey League of Community Bankers – James M. Meredith

UBS AG -- Phil Gramm

 

Public Policy Groups

Center for Freedom and Prosperity – Andrew F. Quinlan

Coalition for Tax Competition -- More than 30 of the country's largest and most influential free-market groups

Americans for Tax Reform -- Grover G. Norquist

Americans for Tax Reform, Grover G. Norquist letter to Treasury Secretary John Snow

Cato Institute – Veronique de Rugy

Citizens for a Sound Economy Foundation -- Wayne T. Brough

Competitive Enterprise Institute -- Solveig Singleton

Discovery Institute – Ambassador Bruce Chapman

Empower America -- Jack Kemp

The Heritage Foundation -- Edwin J. Feulner

The Heritage Foundation -- Daniel J. Mitchell

Institute for Research on the Economics of Taxation -- Stephen J. Entin

National Small Business United – Todd McCracken

The Potomac Foundation – Norman A. Bailey

Small Business Survival Committee -- Raymond J. Keating

Southeastern Legal Foundation, Inc.

U.S. Chamber of Commerce


Center for Freedom and Prosperity – Andrew F. Quinlan

The regulation is only cosmetically different from the original one proposed in January of 2000 (REG-126100-00) that was withdrawn earlier this year. Many Members of Congress have objected to the damage this type of rule will cause the U.S. economy, and that concern is not ameliorated by the reduction in the number of targeted nations. Please see the attached letter from 46 Members of the U.S. House of Representatives to President George W. Bush dated April 5, 2002.

The IRS's bank deposit interest reporting requirement is bad process and bad policy. It is not the responsibility of either the United States government or U.S.-based financial institutions to enforce the bad tax laws of other nations. I urge you to withdraw the proposed regulation. [Link to full letter below:]
http://www.freedomandprosperity.org/ltr/cfp-irs/cfp-irs.shtml

 

Coalition for Tax Competition -- More than 30 of the country's largest and most influential free-market groups

This regulation is bad tax policy and bad regulatory policy. It is inconsistent with President Bush's tax reform agenda and it will hurt the U.S. economy by reducing the amount of capital for workers, consumers, homeowners, and entrepreneurs."

The Coalition letter listed ten reasons why the proposed regulation should be withdrawn (see letter for more details):

  1. The IRS is abusing its regulatory authority.
     
  2. The proposed regulation flouts existing law.
     
  3. Capital will flee the U.S. economy if the regulation is implemented.
     
  4. The regulation will make U.S. banks less competitive.
     
  5. Banks will face a heavy paperwork burden.
     
  6. The proposed regulation is bad tax policy.
     
  7. The IRS failed to perform legally-required cost/benefit analysis.
     
  8. The proposed regulation will undermine fiscal competition.
     
  9. The IRS is playing the politics of divide-and-conquer with the regulation.
     
  10. The regulation violates the Treasury Department's position on information-sharing. [Link to full letter below:]
    http://www.freedomandprosperity.org/ltr/ctc5/ctc5.shtml

 

Americans for Tax Reform -- Grover G. Norquist

It seems like only months ago that I weighed in on the subject of reporting the interest earned by nonresident aliens on their US-based deposits to the governments of their home countries because indeed it was only months ago. The regulation proposed at the time was abandoned, and rightly so. It would have dealt a direct blow to our nation's economy by introducing a potent disincentive for people in other countries to put their money in American banks. Why bother if the tax collectors back home can find out about it, and use the information to take their unfair share?

But unfortunately, like Frankenstein's monster, this regulation has been stitched together again and reanimated. It was a uniquely lousy idea before, and narrowing its focus by concentrating this most recent effort on residents of "only" 15 countries makes it no less objectionable. Successfully imposing this regulation on these unlucky 15 will make it easier to regulate everyone else at a later (but not too distant) juncture. [Link to full letter below:]
http://www.atr.org/pdffiles/eusavingstaxwenzel.pdf

 

Cato Institute – Veronique de Rugy

I am writing to state my opposition to the Internal Revenue Service's recent proposal to require the reporting of bank deposit interest paid to nonresident aliens (regulation 133254-02). It is important to remember that if the US government collects information, under our current system and tax treaties, the US is then obliged to share it with foreign governments. This fact alone means that in effect this regulation is the equivalent of a systematic information sharing agreement with selected nations. As such, this regulation is not only bad tax policy, but as we will see, it is also a flagrant abuse of the regulatory process. Also, if implemented, this regulation would impose incredible financial damages on an already weakened U.S. economy. Finally, it would jeopardize the ability of the US to engage in fundamental tax reforms that the administration favors. [Link to full letter below:]
http://www.freedomandprosperity.org/ltr/derugy-irs/derugy-irs.shtml

 

Citizens for a Sound Economy Foundation -- Wayne T. Brough

The proposed regulation, which would require financial institutions to report interest on deposits in U.S. financial institutions paid to nonresident aliens, raises several concerns. Most directly, the proposed rule poses a threat to financial privacy and creates a significant compliance burden. Yet the rule would have significant indirect effects as well.  First, the new reporting requirements could reduce the demand for deposits in U.S. financial institutions by nonresident aliens, which would have an adverse impact on U.S. consumers. Second, the new regulations may dampen tax competition at the international level, which could have effects on long-term economic growth. Finally, CSE Foundation views the proposed guidance as an unnecessary expansion of IRS operational requirements that is unnecessary for the agency's fundamental mission.  This may raise questions relative to both issues of congressional intent as well as the goals of the Government Performance and Results Act.

Most simply stated, the proposal would require U.S. financial institutions to report interest paid to foreigners on deposits they keep in U.S. institutions.  This information would do little to assist the IRS in its mission of collecting tax revenue, because the interest payments in question are not considered taxable income here in the United States.  In fact, the issue has been addressed a number of times in Congress, where there has been a longstanding policy that such deposits by nonresident aliens should not be taxed in order to attract foreign capital to the benefit of the American economy.  Moreover, Congress has never mandated any reporting requirements on such income by nonresident aliens.  The information collection proposed by the IRS is a departure from policies established by Congress that has no impact on revenue collection. [Link to full letter below:]
http://www.cse.org/informed/issues_template.php/1174.htm

 

Competitive Enterprise Institute -- Solveig Singleton

Proposed IRS regulations (REG 133254-02, REG 126100-00) would require financial institutions to report interest on deposits paid to nonresident alien individuals that are residents of Australia, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, and the United Kingdom. The Competitive Enterprise Institute urges the IRS to withdraw the proposed regulations in its entirety.

The proposed rules would result in the withdrawal of foreign investment from the United States, reducing the capital available for economic growth. (This threat would be revealed by a proper regulatory assessment which, contrary to the assertion in the IRS Notice of Proposed Rulemaking, is required in this case by Executive Order 12866). The rules are not needed to enforce United States tax law, and no benefit will accrue to the United States by forcing its financial institutions to bear the costs of enforcing other jurisdictions' tax codes. Finally, the rules represent a short-sighted approach to tax compliance policy. Tax policy, like other public policy, should be conducted from the standpoint of the public interest, rather than from the narrow point of view of tax enforcers, to minimize the distortive effect of taxes on the economy. [Link to full letter below:]
http://www.cei.org/gencon/027,03284.cfm

 

Empower America -- Jack Kemp

I am writing to express my strong opposition to the regulation that would force American banks to report interest payments made to nonresident aliens with U.S. accounts. This regulation is clearly contrary to America's national interests. Residents of other nations view the United States as a safe haven and have about $1 trillion of deposits in American banks. This capital helps fund job creation and economic growth, benefiting U.S. workers and entrepreneurs. But if this regulation is implemented, a substantial portion of this liquid capital will flee to more hospitable jurisdictions.

If the IRS undermines the confidentiality of the American banking system, this will hurt our economy and weaken financial markets. But it also will be bad for the nonresident aliens who are putting money in our banks. By definition, these people feel that U.S. financial institutions are a safer and sounder steward of their money. Some of them may be escaping oppressive tax burdens, while others may be fleeing corruption and crime. Regardless, America benefits by gaining access to this capital. [Link to full letter below:]
http://www.empoweramerica.org/stories/storyReader$650

 

The Heritage Foundation -- Daniel J. Mitchell

This regulation is an abuse of the regulatory process, and it will damage the U.S. economy if it is implemented. There is every reason to suspect that the IRS is pursuing and ideological agenda, one that is both improper and ill-advised.

While outsiders may not be able to discern the reason for this proposed rule, it certainly is possible to assess its impact and review its theoretical underpinnings. By every standard, the proposed regulation is deeply flawed. There are no potential benefits, yet the rule, if implemented, would impose heavy costs on industry, the economy, and the government. [Link to full letter below]
http://www.freedomandprosperity.org/ltr/mitchell-irs/mitchell-irs.shtml

 

The Independent Community Bankers of America -- A. Pierce Stone

The Independent Community Bankers of America (ICBA) is pleased to offer the following comments on the proposed rule change to require reporting of interest paid on deposits of all nonresident alien bank customers. The Internal Revenue Service proposal would require financial institutions to perform new reporting. The ICBA opposes this proposal as a cumbersome, unnecessary and costly burden that would negatively impact financial institutions, their customers, and their communities. The cost to community bankers to comply with this proposed regulation would outweigh the anticipated benefits the IRS would obtain from the additional information reported. [Link to full letter below]
http://www.freedomandprosperity.org/ltr/icba-irs.pdf

 

Institute for Research on the Economics of Taxation -- Stephen J. Entin

I offer the following comments on REG-133254-02, a regulation proposed by the Internal Revenue Service to provide guidance on the reporting requirements for interest on deposits maintained at U.S. offices of certain financial institutions and paid to nonresident alien individuals that are residents of certain specified countries.

My conclusion is that the proposed regulation would be detrimental to the economy of the United States, and would provide little or no benefit to the U.S. Treasury, either in terms of administrative advantages or additional revenue. As such, it should not be adopted. [Link to full letter below]
http://www.freedomandprosperity.org/ltr/entin-irs/entin-irs.shtml

 

Small Business Survival Committee -- Raymond J. Keating

Capital is the lifeblood of small businesses.  That is, access to financial capital – whether through bank loans or venture capital investment – is what allows entrepreneurs to start up and build businesses. These enterprises, of course, provide innovations and new products and services; boost economic growth; and create the bulk of new jobs in the U.S. economy.

Through excessive levels of taxation and/or regulation, government can restrain the economy, thereby causing lost income and jobs.  Unfortunately, that is exactly what a proposed rule from the Internal Revenue Service (IRS) would do if implemented. [Link to full letter below]
http://www.sbsc.org/CongressionalTestimony.asp?FormMode=Congres sionalTestimony&ID=45

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