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Community bankers are urging lawmakers to pressure the IRS into withdrawing a proposed rule requiring banks to report interest paid on deposit accounts of nonresidents.
June 3 -
Banks are reviving an old campaign against an IRS proposal that they fear will drain foreign capital from the U.S. economy and put foreign depositors at risk in their home countries.
February 17
The head of a congressional panel that oversees the Internal Revenue Service says a proposed rule that would require U.S. banks to report interest paid to foreign account holders would discourage foreign investment and place an unnecessary burden on banks.
In a letter to Treasury Secretary Timothy Geithner Tuesday, Rep. Charles Boustany, the chairman of the House Ways and Means oversight subcommittee, said that imposing reporting requirements on these deposits "through regulatory fiat threatens to drive significant investments out of our economy ...at exactly the time when our economy can least afford it."
Boustany, a Louisiana Republican, has asked the IRS to provide his committee with a detailed cost-benefit analysis of the proposed rule by Oct. 11.
The IRS proposed the rule in February, nine years after it withdrew a similar proposal that was broadly rejected. In a notice published in the Federal Register, the IRS said it was reintroducing the proposal to encourage greater cooperation between countries in tracking the deposits of nonresidents. The IRS has said that if U.S. banks track interests nonresidents earn here, other countries might reciprocate and report to the IRS how much interest U.S. residents are earning in foreign banks.
Bankers, however, have argued that the rule would likely result in mass withdrawals, which could inhibit their ability to lend. In June, the Independent Community Bankers of America sent a letter to congressional leaders urging them to pressure the IRS into withdrawing the proposal.
The U.S. Chamber of Commerce estimates that nonresident aliens hold nearly $4 trillion of deposits in U.S. banks. Camden Fine, the ICBA's president and chief executive officer, said in his letter that an exodus of these deposits, "would immediately reduce banks' capital levels at the very time when banks desperately need capital to sustain an economic recovery."
In his
"Imposing unnecessary burdens on U.S. banks is the wrong way to address the problem," he wrote.
