WASHINGTON — The House of Representatives voted Thursday to block a pending Internal Revenue Service regulation that would require U.S. banks to report tax information on foreign depositors.
The legislation is a last-ditch effort by the banking industry — and particularly certain banks in border states such as Florida and Texas that rely heavily on deposits from Latin America — to stave off new tax rules slated to take effect in January.
The measure passed the House by a 251-165 vote, with 18 Democrats joining nearly all House Republicans in support. But even the bill's supporters in the banking industry acknowledge that it is unlikely to become law. Instead, they hope that the measure, which passed as an amendment to a larger bill, will send a signal to the Obama administration about where members of Congress stand on the issue.
At banks that rely on foreign deposits, the IRS rule has aroused concern that nonresident aliens will move their money to foreign banks to avoid tax reporting of interest income.
Indeed, Rep. Bill Posey, R-Fla., the amendment's sponsor, said Wednesday that according to the Florida International Bankers Association, depositors have already withdrawn $300 million from U.S. banks in anticipation of the rules’ enactment.
"Adoption of this amendment will stop the hemorrhaging of hundreds of millions of dollars, soon to be billions of dollars," Posey said during a debate on the House floor.
The IRS is trying to crack down on tax evasion and to show foreign countries that the United States is reciprocating with their efforts to help the U.S. government identify tax cheats.
Rep. Barney Frank, D-Mass., argued Wednesday that the legislation would put the United States in a race to the bottom with tax haven jurisdictions.
"It is the tax evader's bill of rights," he said during the floor debate.
Banks argue that many foreign depositors are not evading taxes and, because they live in countries with corrupt governments, have reason to fear the potential repercussions of the IRS sharing information with authorities in their home countries.
The Obama administration has sought to assuage those concerns, noting that it will only share tax information with nations with which the United States has a tax treaty, and even then only if certain conditions are met.
In a memo to House lawmakers Wednesday, the American Bankers Association made a separate argument against the regulation, saying that the IRS has not conducted a cost-benefit analysis of its impact.
"A cost-benefit study would show that the cost of compliance for many community banks significantly outweighs any benefits that the IRS believes it will derive," wrote James Ballentine, an ABA lobbyist. "Banks will be forced to incur significant costs to implement a reporting system solely for the benefit of the IRS that will not collect any new tax revenue for the U.S."
Posey's legislation was attached as an amendment to a Republican bill, also passed by the House on Thursday, which would bar federal agencies from imposing significant regulations until the unemployment rate falls below 6%.
The measure appears unlikely to pass or even be considered by the Senate, where Florida Sen. Marco Rubio has introduced companion legislation.
Although the Senate bill has 21 co-sponsors, Florida Sen. Bill Nelson is the only Senate Democrat who has agreed to co-sponsor the measure.
Furthermore, the Democratic-controlled Senate does not plan to consider the larger House bill to which that the measure was attached.