U.S. Banks Must Report Foreign Clients’ Interest: Judge
U.S. banks must report interest earned by accountholders who reside abroad, a federal judge said, ruling against two banking associations that had challenged the Internal Revenue Service’s requirement.
The regulation will deter foreign and domestic tax evasion, imposes a minimal reporting burden on banks, and won’t cause anyone other than a tax evader to withdraw his funds from U.S. accounts, U.S. District Judge James. E. Boasberg in Washington said in a decision today.
The IRS is starting to require the information to comply with international treaties requiring foreign banks to provide similar information about overseas accounts of U.S. taxpayers. Banks in the U.S. already are reporting interest earned by U.S. citizens and residents. The new requirement only applies to nationals of about 70 countries with which the U.S. has an exchange agreement.
“Reciprocity is the key to success in such treaties,” the judge said. “If the United States does not gather and report tax information for foreign accountholders, then other countries have little incentive to provide us with similar information.”
The Florida Bankers Association and the Texas Bankers Associations sued in April to block the requirement, claiming banks would be hurt by it as accountholders from countries including Egypt, Mexico, Pakistan, the Russian Federation and Venezuela would withdraw their deposits because of concern information about their personal assets would be leaked in those countries.
James Butera, a lawyer for the two banking associations, didn’t immediately respond to phone and e-mail messages after regular business hours seeking comment on the ruling.
“This ruling advances the Department of Justice’s and Internal Revenue Service’s continuing efforts to pursue taxpayers trying to evade taxes through offshore accounts,” Assistant Attorney General Kathryn Keneally of the Tax Division said in a statement today.
The case is Florida Bankers Association v. U.S. Department of Treasury, 13-00539, U.S. District Court, District of Columbia (Washington).
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