IRS wants US banks to report interest earned by nonresidents

by Phil Hodgen on January 18, 2011

Our government is in the throes of attempting to force U.S. banks to report interest earned by nonresident depositors.  This is stupid on stilts.

  • Bank interest earned by nonresidents is not taxed in the USA.  This is built into the Internal Revenue Code.
  • If nonresidents have a choice where to put their money (and they do), they will deposit their money where they won’t get taxed.
  • If US banks don’t get deposits, they’ll be weakened.  Or to use Wall Street jargon, they’ll get more weakerer.

It is as obvious as sunrise what will happen if the Department of Treasury does this.  Money will flee from U.S. banks.

Dan Mitchell has written up a nice little summary titled “The IRS Run Amok” that will give you a brief overview of the situation.

Look at this latest effort, and look at the way the government bureaucrats are going after grannies and immigrants in the Offshore Voluntary Disclosure Program.  Memo to Washington:  get out of the building and walk around a bit.  There is a whole set of reality that you cannot see.  You’re causing damage.

Posted in Income taxation of nonresidents, Tax bureaucracy

Reader comments (2)

  • Gary says Jan 19, 2011 12:16 pm

    This likely outcome here is a “reverse FATCA” response. US banks will stop offering accounts and services to non-US customers because they don’t want to bear the added costs of reporting complex information. They also won’t want exposure to the inevitable penalties that the IRS will apply if they get the information reporting wrong.

    Just like foreign banks are now dumping US citizens, then, we can expect US banks to likewise dump non-US citizens. This, rather than the actual taxation element, is what will drive foreign investment out of the US. The money won’t jump, it’ll be pushed.

  • Sally says Jan 22, 2011 1:52 am

    Wha…?
    The US Congress enacted FATCA, demanding information about US citizens’ bank accounts abroad, while leaving in place a law making it ILLEGAL for US banks to comply with similar demands by foreign countries for information about their citizens’ accounts in US?

    Lack of reciprocity. Incredible.
    Requiring the information is either right or it is wrong. But it can’t be “wrong” for foreign countries to demand information about their citizens and “right” for the US to demand information about its citizens.

    I wonder what the European Commission would say about that.

    The US Congress apparently thinks it rules the world. It does not.

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