Washington Group Presses IRS To Abandon Non-Resident Interest Plan

Tax-News.com, New York

21 January 2002

Washington-based lobbyist the Centre for Freedom and Prosperity is continuing to push for the Internal Revenue Service (IRS) to abandon its proposed regulation requiring the reporting of bank deposit interest paid to nonresident aliens.

"Three days before he left office, President Clinton's IRS proposed a regulation that would chase hundreds of billions of dollars out of the U.S. economy. The good news is that President Bush halted the regulation, but the President still needs to formally withdraw the regulation to eliminate uncertainty and help American banks compete," said Andrew Quinlan, President of the Center for Freedom and Prosperity.

The IRS proposal (REG - 126100-00) would force U.S. banks to inform the IRS about any bank deposit interest paid to people from other countries. The IRS
then would pass that information to the other countries' tax authorities so that they could impose tax on the interest paid to those accounts - even though the income was earned in America.

Daniel Mitchell, Heritage Foundation Senior Fellow, commented, "This regulation would be poison for the U.S. economy. About $1 trillion of foreign-owned bank deposits are in America, and owners of these accounts will withdraw a substantial portion of this capital if the Clinton-era regulation is finalized. This would undermine U.S. banks and mean less money for Americans seeking loans and mortgages. This also means less economic growth, which will reduce tax revenues and create additional demand for government programs."

Veronique de Rugy of the Cato Institute warned that, "This last-ditch effort by the Clinton administration to undermine tax competition would be comical if the resulting outcome did not promise to damage the US economy. The time has come to withdraw this ill-advised regulation."

Quinlan concluded by saying, "The IRS proposal puts Europe's interests ahead of America's interests. The United States is a low-tax country compared to Europe's welfare states, and capital inflows are the reward for this fiscally responsible stance. It would be foolish to undermine that advantage by giving other nations the right to tax the income generated by this capital."

The Center for Freedom and Prosperity is an Alexandria, Virginia-based, 501(c)(4) nonprofit, nonpartisan organization that lobbies Congress and the Administration on tax competition, financial privacy and fiscal sovereignty.

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