Sharing Bank Deposit Information With Other Countries: Should Tax Compliance or Privacy Claims Prevail?

Abstract

A proposed regulation issued as one of the final acts of the Clinton Administration would have required  U.S. banks to routinely file with the IRS reports identifying nonresident alien individuals receiving payments of interest and the amount of such interest. U.S. bank deposit interest paid to nonresident aliens is exempt from U.S. tax, and previously only payments to Canadians were required to be reported to the IRS. Intense opposition to this regulation was expressed by bankers and other organizations, such as the Center for Freedom and Prosperity, as well as by Governor Jeb Bush of Florida (where bank deposits are held by many residents of Latin America). This opposition led the Bush Administration to withdraw the proposed regulation but to replace it with a similar proposed regulation applicable only to residents of 16 countries (12 member countries of the European Union, as well as Canada, Australia, New Zealand, and Norway). While the new proposed regulation has also  attracted fierce opposition, the Bush Administration has continued to defend it (but has not yet finalized it).