The Obama administration says U.S. banks should disclose to the Internal Revenue Service bank accounts owned by foreigners, resurrecting a Clinton-era proposal that was opposed by banking groups and Republicans.
The IRS proposed regulations Jan. 7 that would pave the way for the U.S. to routinely share information for the first time with other governments about their citizens' deposits in U.S. financial institutions.
The move is designed to help governments worldwide pierce bank secrecy, the agency said. It came after a successful three-year effort by the U.S. to pressure Switzerland and its biggest bank, UBS AG, to reveal the U.S. owners of undeclared accounts held offshore.
"A growing global consensus [has developed] regarding the importance of cooperative information exchange for tax purposes," the agency said in a notice announcing the proposal in the Jan. 7 Federal Register.
The IRS proposal came on the eve of issuance of separate regulations to require foreign banks to identify U.S. customers to the IRS and withhold 30% of U.S. interest and dividend payments from account holders who provide inadequate information to determine their U.S. status.
Jon Sambur, a lawyer at Mayer Brown in Washington, said the proposed rules issued this month affecting U.S. banks were a surprise and may be aimed at soothing foreign governments. "This is not something that was broadcast to happen," he said. "The timing of it seems to be an effort by the U.S. to show some good will to foreign jurisdictions."
The U.S. does not tax interest earned in U.S. banks by foreigners who live abroad, and the accounts are not required to be reported to the IRS, except for residents of Canada. That makes it difficult for the IRS to supply information about an account to a comparable agency in a foreign government.
The new proposal is nearly identical to one promulgated by President Bill Clinton's Treasury Department on Jan. 17, 2001, three days before he left office. That proposal drew opposition from the California Bankers Association, Florida Bankers Association and Conference of State Bank Supervisors, among others, who were worried about a flight of capital.
Scott Talbott, the senior vice president for government affairs at the Financial Services Roundtable, said of the proposal: "We're concerned about it because it will create a competitive disadvantage for U.S. banks."
The Commerce Department said that non-U.S. citizens have $10.6 trillion passively invested in the U.S. economy, including about $3.6 trillion held by banks and securities brokers.
A 2004 study by George Mason University in Fairfax, Va., concluded that the proposed Clinton rules would have led to U.S. banks' loss of $88 billion in capital.