Banks Push Back on New Tax Rules for Foreign Accounts

WASHINGTON — The banking industry is not relenting in its fight against new Internal Revenue Service rules that will require more tax reporting on accounts held by foreigners.

The IRS announced last month that starting next year, U.S. banks will be required to report to tax authorities on interest payments they make to non-resident aliens. On Monday, the American Bankers Association pushed for changes in the new rules in a letter to IRS Commissioner Douglas Shulman.

The rules, which have been in the works for more than a year, are part of an effort to crack down on tax evasion. U.S. authorities say they cannot expect foreign governments to share information about accounts held by American citizens unless the United States is willing to reciprocate.

But the rules are sparking fears in border states such as Texas and Florida, where some banks rely heavily on deposits from Latin America, that foreign account-holders will move their money to offshore accounts in order to evade the new rules.

Bankers in those states have also expressed concern that authorities in certain countries will not ensure the confidentiality of account information , even raising the specter of potential kidnappings.

While the Obama Administration pushed back against those warnings, arguing that the fear that foreign citizens will withdraw their funds from U.S. banks is overblown, the IRS did take certain steps to address the banks' concerns.

The agency stated that it will not share information with countries unless they have information-sharing agreements with the United States — 78 such countries are on a public list — and added that it can refuse to share the information even with nations that are on that list.

Now the ABA wants the IRS to go further by establishing a second list of countries — to be published and updated annually — that are actually eligible for the exchange of information.

For example, while Venezuela does have an information-sharing agreement with the United States, U.S. government officials have told reporters that they have no plans to share bank-account information with the South American nation, so Venezuela would presumably be left off the second list.

ABA President Frank Keating argued in the letter to the IRS that the current rules, which do not make explicit that information will not be shared with Venezuela, leave too much uncertainty.

"Essentially, banks and their foreign depositors must trust that sensitive financial information will not fall into the wrong hands, with no knowledge of how that decision is made or what the final outcome might be," Keating wrote.