iOS app Android app More

Banks In Southern States Worry New IRS Tax Evasion Rule Will Scare Off Foreign Customers

Posted: 04/17/2012 7:33 pm Updated: 04/18/2012 12:31 pm


April 17 (Reuters) - Banks in Texas, Florida and other southern states could face a pull-out of non-U.S. depositors due to a new U.S. rule finalized on Tuesday, industry analysts said.

The rule issued by the Internal Revenue Service will require U.S. banks, starting on Jan. 1, 2013, to report to the IRS payments of interest made to non-resident aliens.

"The reporting required by these regulations is essential to the U.S. government's efforts to combat offshore tax evasion," said an IRS statement announcing the rules' finalization.

The IRS wants to share interest payment information that it gets under the rule with foreign governments in an effort to get them to share more information with the United States.

Two Florida Republicans in the U.S. Congress have introduced legislation that would block the IRS' action, citing concerns it could trigger a flight of non-resident capital.

"The claim that the proposed regulations will cause nonresidents to pull their money out of U.S. banks isn't supported by past experience," said Emily McMahon, the Treasury Department's acting assistant secretary for tax policy last month in a letter to the editor of the Miami Herald newspaper.

Foreigners have many reasons for depositing money in U.S. banks beyond reporting considerations, she said.

Guggenheim Partners financial policy analyst Jaret Seiberg said the new rule "raises the risk that depositors in border states will pull their cash from U.S. banks. At its worst, this could threaten the viability of some of these banks."

Capital from Latin America is a particular concern.

"We would note that banks in Florida and Texas were especially active in arguing against this rule, which we believe indicates that they have the most at risk," he added. (Reporting By Kevin Drawbaugh; editing by Andre Grenon)

FOLLOW BUSINESS

Filed by Reuters  |