If you have a lot of investments or savings, your mailbox is starting to fill up (or will soon fill up) with copies of all those forms that your bank, your employer, and your brokerage firm send to the Internal Revenue Service to report the income paid to you last year. Banks are required to report the amount of interest paid on deposit accounts. Right now, they are only required to file those reports on U.S. and Canadian account holders.
On January 6, the Internal Revenue Service (IRS) proposed new rules (REG-146097-09) requiring banks to report interest paid to nonresident foreign individuals just as they report interest on U.S. citizens and residents. The IRS will use this information to respond to foreign governments' requests for information about their citizens' U.S. income.
As the IRS stated in its notice, we have seen in the last few years "a growing global consensus" about how important it is for countries to cooperate in exchanging tax information to protect their tax revenues and catch tax cheats. Many significant agreements have been reached recently, including eliminating the use of bank secrecy laws as a reason for refusing to share information.
The new reporting rules will also help the IRS catch U.S. tax cheats that are currently avoiding the reporting rules by posing as foreigners.
On the same day the proposed regulations were announced, the Center for Freedom and Prosperity, which CTJ long ago dubbed the "Tax Cheaters' Lobby," came out against the new rules and promised to lead the fight to "derail or kill this misguided regulation." The Tax Cheaters' Lobby works hard to preserve tax havens and the ability of wealthy people to hide their assets and avoid paying their taxes.
CTJ, on the other hand, applauds the IRS for taking this important step against tax evasion by citizens of all countries.