Geithner Pressed to Block IRS Bank Reporting Rule
Representative Charles Boustany of Louisiana, the Republican chairman of the House Ways and Means oversight subcommittee, called on Treasury Secretary Timothy Geithner to “suspend” an Internal Revenue Service proposal that would require banks to identify overseas depositors.
If enacted, the IRS proposal would require U.S. banks to report the identities of overseas customers who receive more than $10 in interest during a calendar year. In a letter sent to Geithner today, Boustany said the measure “serves no compelling tax collection purpose.”
“Instead, it is my understanding that the IRS seeks this new authority to help foreign governments collect their own taxes abroad,” Boustany wrote. “While the United States continues to be a leader in efforts to fight international tax evasion, imposing unnecessary burdens on U.S. banks is the wrong way to address the problem.”
Boustany’s letter underscores some of the challenges facing the IRS and the Obama administration as U.S. officials attempt to crack down on tax evasion at home and overseas. The Obama administration is completing the rule for domestic banks as it addresses criticism from non-U.S. financial institutions, including Allianz SE (ALV) of Germany, on a separate proposal that would impose withholding requirements for companies that don’t identify their U.S. clients to the IRS.
The IRS and the Obama administration haven’t said when the proposed rule for domestic banks would be completed.
Domestic Banks’ Concerns
Some banks in the U.S., including the $1.1 billion-asset BAC Florida Bank in Coral Gables, have said they are concerned that overseas customers would pull deposits if their identities were reported to their home governments. The entire Florida delegation to the House of Representatives signed a letter to President Barack Obama in March asking him to block the rule from taking effect.
“We don’t want to make a police force out of community banks and the financial sector in general,” said Paul Merski, the chief economist at the Independent Community Bankers Association, a Washington group that represents small banks.
Alex Sanchez, president of the Florida Bankers Association, said the proposal would worsen unemployment in his state and subject overseas depositors to political pressure at home.
“This will kill jobs, first in the financial services industry and then through the capital that will be taken off our shores,” he said.
In his letter, Boustany said Congress had already declined to impose reporting requirements on depositors’ interest. He asked Geithner to respond by Oct. 11 to several questions, including whether the administration has performed a cost- benefit analysis of the regulation and how the IRS plans to share the information it would collect under the proposal.
Spokeswomen from the Treasury Department and the IRS didn’t immediately comment on Boustany’s letter.
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