(Bloomberg News) The Obama administration says U.S. banks should disclose to the IRS bank accounts owned by foreigners, resurrecting a Clinton-era proposal that was opposed by banking groups and Republicans.
The Internal Revenue Service proposed regulations January 7 that would pave the way for the U.S. for the first time to routinely share information with other governments about their citizens' deposits in U.S. financial institutions.
The move is designed to help governments around the world pierce bank secrecy, the agency said. It follows a successful three-year effort by the U.S. to pressure Switzerland and its biggest bank, UBS AG, to reveal the U.S. owners of undeclared accounts held offshore.
"There is a growing global consensus regarding the importance of cooperative information exchange for tax purposes that has developed," the agency said in a notice in the January 7 Federal Register announcing the proposal.
The IRS proposal comes on the eve of the issuance of separate regulations that will require foreign banks to identify U.S. customers to the IRS and withhold 30 percent of U.S. interest and dividend payments from account holders who provide inadequate information to determine their U.S. status.
Jon Sambur, a lawyer at Mayer Brown in Washington, said the rules issued this month affecting U.S. banks were a surprise and may be aimed at assuaging foreign governments.
"This is not something that was broadcast to happen," Sambur said. "The timing of it seems to be an effort by the U.S. to show some goodwill to foreign jurisdictions."
The U.S. doesn't tax interest earned in U.S. banks by foreigners who reside abroad, and the accounts aren't required to be reported to the IRS, except for residents of Canada. That makes it difficult for the IRS to provide information about an account to a comparable agency in a foreign government.
The new proposal is nearly identical to one promulgated by President Bill Clinton's Treasury Department on January 17, 2001, three days before he left office.
That proposal was opposed by former House Ways and Means Committee Chairman Bill Thomas, a California Republican, and by groups including the California Bankers Association, the Florida Bankers Association, and the Conference of State Bank Supervisors, which warned of a flight of capital from U.S. banks if the rules were adopted.
Opposing The Rules
Andrew Quinlan, president of the Center for Freedom and Prosperity, which lobbied against the 2001 rule, said his group would again lead efforts to oppose it.
"The regulation is designed to accumulate information that can be provided to foreign governments, which means the regulation puts the interests of overseas tax collectors above U.S. law and before the interests of the American economy," Quinlan said on his Web site.
The Commerce Department says non-U.S. citizens have $10.6 trillion passively invested in the U.S. economy, including about $3.6 trillion held by banks and securities brokers. A 2004 study by George Mason University in Fairfax, Virginia, concluded the proposed Clinton rules would have led to a loss of $88 billion in capital from U.S. banks.