On Tuesday, advocates for transparency scored a victory while tax evaders suffered a loss. The Treasury Department issued final regulations requiring banks to report to the IRS any interest payments made to foreign account holders in the same way they must report interest payments made to U.S. resident account holders. You’d think this sort of regulatory issue would be a pretty dull affair, but sparks flew over the last several months as opponents of the new rule accused Citizens for Tax Justice and the Obama administration of supporting dictators, kidnappers and terrorists.
The U.S. government taxes interest payments made to U.S. residents but not those made to foreigners, so before now it never bothered to require banks to report those interest payments made to foreigners. But the IRS proposed to change that rule in order to reduce tax evasion by Americans, both directly (by helping to identify Americans who evade U.S. taxes by posing as foreign account holders) and indirectly (by helping other countries enforce their tax laws so that they’ll help us enforce ours).
CTJ and the Financial Accountability and Corporate Transparency (FACT) Coalition continually expressed support for the regulations as they worked their way through the process, and CTJ’s Rebecca Wilkins testified before the Internal Revenue Service and the House Financial Services Committee in support of the rule. Sen. Carl Levin, a long-time crusader against tax haven abuse and chair of the Senate Permanent Subcommittee on Investigations also submitted comments. Levin’s committee has done ground-breaking investigative work on offshore tax evasion issues and chief counsel Elise Bean also testified in support of the proposed regulations.
At the House Financial Services Committee hearing in October, Republican Chairman Spencer Bachus read a letter from the Florida House delegation, which apparently is protective of its banks even when they facilitate tax evasion. Many people who live in unstable countries and have U.S. bank accounts, the letter argues, are “concerned their personal bank account information could be leaked to unauthorized persons in their home country government or to criminal or terrorist groups upon receipt from U.S. authorities, which could result in kidnapping or other terrorist actions…”
Wilkins explained that the IRS would only hand over information to foreign governments in response to a careful, limited request under a tax information exchange agreement. Even more important, Wilkins explained, is that the rule in effect until now actually helped criminals, corrupt government officials, terrorists and money launderers by allowing them to hide their money in the U.S.
The hearings made clear that supporters of the regulations were greatly outnumbered by the tax cheaters’ lobby, the politicians, and the bankers who benefit from facilitating tax evasion. We’re really glad that the IRS didn’t rewrite the regulations to please them.
Today we’re celebrating this rare win in our long fight for good tax policy and robust enforcement. But the real winners today are honest taxpaying citizens all over the world.