This is an ongoing saga. For economic reasons (to help U.S. banks and the U.S. economy) we currently allow foreigners to earn interest on bank deposits completely free of U.S. tax. Not only that, but the IRS isn’t told how much interest the foreigner earns. Compare that to what happens for domestic taxpayers: we get a Form 1099 reporting exactly how much interest we earned. That gives the IRS the ability to check how truthful we are on our income tax returns.
See the previous post here, where I noted that the U.S. Chamber of Commerce had objected to the proposed regulations.
Here is the Treasury Department’s response to the U.S. Chamber of Commerce, released today on Tax Notes Today.
Mr. R. Bruce Josten
Chamber of Commerce
of the United States of America
1615 H Street, N.W.
Washington, DC 20062-2000
Dear Mr. Josten:
Thank you for your letter to Secretary Snow regarding the proposed Treasury regulations with respect to reporting by banks in the United States to the IRS on interest paid to certain nonresident alien depositors. Because your letter concerns a matter of tax policy, it was referred to me.
We appreciate your comments regarding the proposed regulations. This is the second set of proposed regulations in this area. The original proposed regulations, which were issued in January of 2001, were withdrawn and reproposed in July of 2002 after careful review and consideration of all the comments that had been received. The reproposed regulations were significantly narrowed in order to address the banking industry’s concerns about the January 2001 regulations, while at the same time facilitating the goal of ensuring compliance with U.S. tax laws without unnecessarily burdening U.S. banks. The regulations were issued in proposed form again to provide those potentially affected with the opportunity to comment on their impact. We will review and take into account all comments as we consider our next steps.
The offshore sector is an increasing problem in the enforcement of U.S. tax laws. Enhancing information exchange pursuant to our bilateral tax treaties in appropriate circumstances subject to the strict protections of the confidentiality of information is an important component of our efforts to reduce the opportunities for tax avoidance. Addressing the potential for tax evasion through use of offshore accounts or entities is critical to maintaining the confidence of all Americans in the fairness of the U.S. tax system.
Thank you again for your comments.
Pamela F. Olson
Assistant Secretary (Tax Policy)
Department of the Treasury
OK. Dissecting the letter we can clearly discern the message: “Forget it, yours truly, good-bye.”
It’s to be expected. I expect within 10 years almost everything we do will be completely transparent to the tax authorities. Privacy freaks take note.