More Senior Congressmen Attack IRS Interest-Reporting Rules

Tax-News.com, Washington

23 December 2002

Two further senior Congressmen have added their names to the growing roster of legislators who have written to the US Treasury against proposed rules for the reporting of bank interest paid to non-resident aliens.

Utah Senator Bob Bennett, the incoming Joint Economic Committee Chairman, and Illinois Congressman Don Manzullo, the House's Small Business Committee
Chairman, both are urging withdrawal of the proposed IRS interest reporting regulation that would require U.S. banks to report to the IRS the amount of bank deposit interest paid to foreign depositors.

The two Chairmen add their name to a fast expanding list of lawmakers opposed to the proposed rule, including Senators Don Nickles and Orrin Hatch and Representatives Bob Ney, Todd Akin; Dan Burton; Chris Cannon; Phil Crane; Jim Davis; Jim DeMint; Lincoln Diaz-Balart; Mark Foley; Randy Forbes; J.D. Hayworth; Jack Kingston; Don Manzullo; Butch Otter; Ron Paul; Joseph Pitts; Ileana Ros-Lehtinen; Pete Sessions; and, Joe Wilson.

Most every major banking organization has come out recently against the regulation including the American Bankers Association, the Florida Bankers
Association, the Conference of State Bank Supervisors, the Credit Union Affiliates of New Jersey, the Credit Union National Association, the Florida
International Bankers Association, the Independent Community Bankers of America, the Institute of International Bankers, the National Association of
Federal Credit Unions, the Navy Federal Credit Union, and the New Jersey League of Community Bankers.

Says Chairman Bennett: "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 benefit from attracting capital to the U.S. far exceeded any revenue that would be gained from taxing bank deposit interest paid to nonresident aliens."

"Furthermore, you may recall that when the money-laundering bill was written, Congress specifically rejected the use of money-laundering powers to enforce the tax laws of foreign governments. I continue to believe that it is not the responsibility of either the U.S. government or the U.S. based financial institutions to enforce the tax laws of other nations."

Chairman Manzullo's explains the effects of the proposals on small business: "My objection to this proposal already is on record as part of a joint letter from members to the Department. I am now writing individually to explain my concerns that the regulation may have unintended and unexamined consequences on small businesses."

"Many bankers expect that at least one-third of the foreign deposits (presumably those from the 15 countries for which the depositary institution must file a Form 1042-S) or more than $300 billion dollars will be shifted to banks in London, Hong Kong and other overseas venues that do not require the reporting of interest of non-resident aliens to a governmental entity."

"Small businesses play a vital role in the American economy and are poised to create the majority of new jobs in the upcoming economic recovery. However, small businesses will not be able to play a role in any expansion if they are starved for capital."

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