Bank and CU Trade Groups Urge Senators to Block IRS Nonresident Rule

Bank and credit union trade groups last week urged senators to support legislation (S. 1506) that would prevent the Internal Revenue Service from issuing a proposed rule requiring the annual reporting of deposit interest paid to any nonresident alien individual.

The groups noted that the proposal would provide no financial benefit to the United States, since such interest paid to nonresident aliens is not subject to tax here, but that it could drive away deposits that support economic growth.

“[T]he list of countries with which the U.S. has [income tax] agreements includes a number of decidedly non-democratic regimes with poor records of protecting human rights that cannot be relied upon to observe confidentiality agreements or to limit their use of data to taxation purposes,” the trade groups said in a letter. “Depositors who reside in these regimes may have legitimate reasons for the confidentiality they have come to expect from the U.S. financial system. Disclosure of their foreign financial holdings could put their families and them at risk of political persecution or criminal harm.”

The groups also noted that deposit interest data is already available to other countries on an as-requested basis, and that the IRS proposal, which provides for automatic exchange of the data, “goes further than needed for the purposes of international cooperation.”

The groups signing the letter were the American Bankers Association, Credit Union National Association, Financial Services Roundtable, Independent Community Bankers of America, and National Association of Federal Credit Unions.