8 Members Of Senate Banking Committee Attack IRS Interest Reporting Plans

Tax-News.com, Washington

14 March 2003

Pressure is mounting in Washington on the US administration to force the IRS to withdraw its plans for the reporting of bank interest paid to foreigners from sixteen countries, including most member states of the European Union.

More than 40 members of Congress have written publicly against the proposals; now, nine members of the Senate Banking Committee, in a bipartisan letter, have called on Treasury Secretary John Snow to withdraw the Clinton-era IRS regulation that would force banks to put foreign tax law above US tax law. The Senators state that 'This new proposal is not needed to enforce any US tax law, and we are concerned that it will put our financial markets at a competitive disadvantage and harm our economy by driving much needed capital elsewhere.'

The proposed IRS rule (REG-133254-02) would force US banks to inform the IRS about any bank deposit interest paid to people from other countries. The IRS then would pass that information on to foreign tax authorities so that they could impose tax on the interest paid to those accounts – even though the income was earned in America.

Free market leaders expressed their appreciation for the leadership of Senator Robert Bennett (R-UT) and his colleagues from the Senate Banking Committee. Andrew F. Quinlan of the Center for Freedom and Prosperity stated, "The Senators deserve credit for standing up against this regulation. The IRS scheme would undermine President Bush's plan to boost jobs and create growth."

Daniel Mitchell of the Heritage Foundation added, "Secretary Snow needs to personally take control of this issue. The Office of Tax Policy at Treasury, by pushing this regulation, repeatedly has demonstrated that it puts the interests of foreign governments ahead of the American people - and it is the American people who will lose access to affordable credit if this regulation is implemented."

Veronique de Rugy of the Cato Institute concurred, "It is absurd to overturn 82 years of established laws just to help welfare states like France and Germany tax US-source income, especially when these nations are trying to undermine American foreign policy."

Grover G. Norquist, president of Americans for Tax Reform, summed up the issue, pointing out that, "Leaders in the Senate and House correctly want this regulation withdrawn. It is bad regulatory policy, bad tax policy, and bad economic policy."

The nine Senators who signed this joint letter join another eight Senators and 39 House Members in an unprecedented level of opposition toward a proposed IRS rule.

The text of the letter follows:

March 11, 2003

The Honorable John W. Snow

Secretary

U.S. Department of the Treasury

1500 Pennsylvania Avenue, N.W.

Washington, D.C. 20220

Dear Secretary Snow:

As members of the Senate Banking, Housing and Urban Affairs Committee, we are writing to express our concerns over a proposed IRS regulation (REG 133254-02) that would compel U.S. banks to report the deposit interest paid to non-resident aliens. This new proposal is not needed to enforce any U.S. tax law, and we are concerned that it will put our financial markets at a competitive disadvantage and harm our economy by driving much needed capital elsewhere.

It is important to note that Congress has examined the tax treatment of indirect foreign investment in our domestic economy on several occasions. On each occasion, it was determined that the substantial benefits from attracting capital to the U.S. far exceeded either any revenue that would be derived from taxing that income in the U.S. or requiring it to be reported so that foreign governments could tax it. For this reason, Congress has repeatedly rejected proposals to tax or report the income.

Furthermore, you may recall that when this committee and the Congress passed the money-laundering bill in the 107th Congress, Congress specifically rejected the use of money-laundering powers to enforce the tax laws of foreign governments. The IRS rule clearly outlines a distinct reporting role for U.S. financial institutions, and we continue to believe that it is not the responsibility of either the U.S. Government or U.S. financial institutions to enforce the tax laws of other nations,

We urge you to withdraw this rule and appreciate your consideration of our views.

Sincerely,

Robert F. Bennett

Wayne Allard

Michael B. Enzi

Rick Santorum

John E. Sununu

Elizabeth Dole

Chuck Hagel

Jim Bunning

Zell Miller

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