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US House Backs Cancellation Of IRS Reporting Rule

by Mike Godfrey, Tax-News.com, Washington

01 August 2012


As an amendment to the Red Tape Reduction and Small Business Job Creation Act, the United States House of Representatives has approved a cancellation of the up-coming Internal Revenue Service (IRS) rule requiring US banks to report interest paid on deposits to non-residents.

In April this year, the Treasury Department issued final regulations to extend the current rule requiring the reporting of interest paid on deposits with respect to Canadian account holders, to all foreign citizens from January 1, 2013.

The Treasury and the IRS have previously attempted to confront the opposition that the reporting rule has raised in Congress and the US financial sector. They still believe that it is essential to the US government’s efforts to combat offshore tax evasion, and will ensure that the IRS can, in appropriate circumstances, exchange information relating to tax enforcement with other jurisdictions.

However, it has been feared that the reporting rule would signal a withdrawal of foreign funds out of US banks, and many have warned that it could drive foreign investment out of the US and burden banks with unnecessary reporting requirements.

While primarily concerned about the outflow of funds the reporting requirement could cause, Eric Sandberg, president of the Texas Bankers Association pointed out that, “not only is this regulation unnecessary, since current law allows the IRS to access the information through a simple request to any depository institution, the Treasury Department admits that the new rule for across-the-board reporting without any request or justification was adopted without any cost-benefit analysis”.

However, while the amendment to the Red Tape Reduction and Small Business Job Creation Act would cancel the reporting requirement, it is unlikely to pass through the Senate given President Barack Obama’s opposition to the bill as a whole, which would, for example, put a moratorium on new regulations that would cost USD100m or more until the US unemployment rate falls to 6% or below.

TAGS: compliance | tax | investment | tax compliance | law | banking | Internal Revenue Service (IRS) | offshore | offshore banking | United States | regulation

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