More US Senators Criticize IRS Interest-Reporting Rules

by Mike Godfrey, Tax-News.com, New York

21 February 2003

Adding to the stream of Representatives and Senators who have questioned the Treasury Department's proposal to require US banks to report interest on deposits by nonresident aliens from 16 countries, two more Senators have written to Treasury Secretary John Snow asking him to rethink the administration's proposal.

Sens. James Inhofe (Rep. - Oklahoma) and Gordon Smith (Rep. - Oregon) both said the rules would cause disadvantage to the country's banking system without any apparent benefits.

Senator Inhofe asked that the rules be withdrawn outright, saying that the United States could suffer substantial loss of capital: "The regulation would undermine 80 years of existing law and clearly contradicts Congress' goal of attracting capital to the U.S. economy," he said. "I believe this regulation is completely contrary to America's economic interests, and I urge its immediate withdrawal."

Senator Smith said the proposed rules could cause significant harm to the US economy, and predicted an exodus of savings that would almost certainly lead
to higher interest rates and lower availability of bank loans. He said he couldn't understand why the Treasury felt obligated to put the enforcement of other countries' tax laws as a priority task.

The proposed rules are a scaled-down version of a measure originally tabled under the Clinton administration which would have called for reporting on interest paid to aliens from 150 countries. Presently, banks are required to report such payments only for Canadian residents.

More than 50 members of Congress have spoken out against the rules. House Small Business Committee Chairman Donald Manzullo said earlier this month that he plans to hold hearings on the rules because he believes the rules would have a negative impact on small businesses

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