Missouri Congressman Challenges IRS On Bank Interest Reporting

Tax-News.com, New York

17 October 2002

Missouri Congressman Todd Akin yesterday sent a letter to the IRS objecting to its proposed regulation that requires the reporting of deposit interest paid to foreigners who invest their money in US banks. The regulation, which was originally proposed during the Clinton era, was recently re-issued by the Treasury Department, in what was seen by some as a covert signal to encourage the European Union in its failing attempt to instal an international information-sharing regime for the taxation of savings interest payments.

"Such a scheme would contravene existing law and harm the competitiveness of American financial institutions,' says Representative Akin. 'More importantly, it would put downward pressure on U.S. markets, threatening the well being of small investors."

The letter accuses the IRS of ignoring the will of Congress: "I am particularly distressed that the IRS is abusing the regulatory process by blatantly ignoring the will of Congress. Existing law - and legislative history - clearly shows that lawmakers did not wish this income to be taxed or reported. Yet the IRS wants to overturn the outcome of the democratic process."

October 16, 2002

Alexandra K. Helou
Office of Associate Chief Counsel (International).
Internal Revenue Service
CC:DOM:ITA:RU (REG-133254-02)
Room 5226
P. O. Box 7604, Ben Franklin Station
Washington, DC 20044

Dear Ms. Helou,

I want to express my strong opposition to the IRS's recent effort to resuscitate a Clinton-era proposal to require the reporting of deposit interest paid to foreigners who invest their money in U.S. banks. Such a scheme would contravene existing law and harm the competitiveness of American financial institutions. More importantly, it would put downward pressure on U.S. markets, threatening the well being of small investors. In addition, millions of American borrowers -- including homebuyers and small businesses -- would be adversely affected as capital leaves the U.S. economy.

I am particularly distressed that the IRS is abusing the regulatory process by blatantly ignoring the will of Congress. Existing law -- and legislative history -- clearly shows that lawmakers did not wish this income to be taxed or reported. Yet the IRS wants to overturn the outcome of the democratic process.

Finally, let me be clear that the "new and improved" version of the regulation is just as flawed as the initial proposal. The IRS's decision to temporarily exempt certain deposits from the reporting requirement is a transparent effort to divide-and-conquer, one that assumes that lawmakers, and the banking industry, are too foolish to realize the depositors from all nations will be added to the list in a couple of years.

I trust this misguided regulation will be withdrawn, and I look forward to an explanation of why the IRS did not perform the required cost-benefit analysis for this regulation.

Sincerely,

W. Todd Akin
Member of Congress

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