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On January 13, 2013, the District Court in the District of Columbia dismissed an action filed by the Florida Bankers Association and Texas Bankers Association challenging the Internal Revenue Service (IRS) rule requiring United States banks to report interest paid on deposits to non-residents.
Amendments to the Department of the Treasury's interest-reporting regulations in 2012 require US banks to report to the IRS information about accounts earning more than USD10 of interest beginning in 2013 that are held by non-resident aliens of all countries with which the US has a tax treaty or other information exchange agreement.
The Treasury and the IRS have insisted that the reporting rule is essential to the US' efforts to combat offshore tax evasion, in that it helps the US' ability to comply with requests from its tax treaty partners where, it was said, "reciprocity is the key to success," and, in particular, to implement the Foreign Account Tax Compliance Act that should go into operation in July this year.
However, it has also been feared that the reporting rule could signal a withdrawal of foreign funds out of US banks. Many have warned that it could drive foreign investment out of the US and burden banks with unnecessary reporting requirements.
"This ruling advances the Department of Justice's (DOJ) and IRS's continuing efforts to pursue taxpayers trying to evade taxes through offshore accounts," said Assistant Attorney General Kathryn Keneally of the DOJ's Tax Division. "The court's opinion today represents an important step in our commitment to work with our treaty partners to eliminate cross-border tax evasion."
In Florida Bankers Association v. US Department of Treasury – No. 13-529, the court upheld the regulations' 2012 amendments, finding that the IRS "reasonably concluded that the regulations will improve US tax compliance, deter foreign and domestic tax evasion, impose a minimal reporting burden on banks, and not cause any rational actor – other than a tax evader – to withdraw his funds from US accounts."
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