Burr Constituent Criticizes Proposed Regs on Reporting Requirements for Deposit Interest Paid to Nonresident Aliens

[1] I am writing to make you aware of the concerns of my constituent, Mr. Alex G. MacFayden, Jr. Mr. MacFayden, the Group Vice President for Government Relations at First Citizens Bank, is concerned about the proposed Internal Revenue Service rule (REG 126100-00) on reporting interest earned on bank deposits held by non-resident foreigners.

[2] I have included a copy of Mr. MacFayden's letter to me. Please know that I share his concerns about the proposed rule, which would force US financial institutions to report the bank deposit interest they pay to nonresident foreigners. It is clearly not designed to help our government collect taxes; rather, it is geared towards helping high-tax countries like France and others collect even more -- while damaging our own economy at the same time.

[3] Our nation's ability to attract foreign capital would be seriously jeopardized if this regulation were to go into effect, and would drive existing capital to overseas banks. The loss of capital would deprive our country of the funds needed to create jobs and generate wealth at home, all at a time when our economy desperately needs both. I encourage you to withdraw this anti-competitive rule.

[4] Thank you for your attention to this matter. Should you have any questions, or if I may be of any assistance to you in the future, please do not hesitate to ask.

[5] Treasury has issued a proposed IRS regulation that could bring about an exodus of billions of dollars in foreign deposits from United States banks. This could have a dramatic effect on banking and commerce in our country.

[6] This regulation will require all banks in the United States to report interest earned on bank accounts held by non- resident aliens. It is not a revenue issue, as the interest earned is not taxable by our government, but apparently is an issue involving the European Union and its wish to reduce tax competition between international jurisdictions.

[7] If this rule becomes effective, then it can be expected that a significant portion of the $1.7 trillion in foreign deposits will leave our country. The movement has already begun and funds are relocating to Hong Kong, Switzerland and several other international money centers.

[8] Our country does not need this additional pressure on its economy and banking system.

[9] We ask that you contact President Bush and urge him to withdraw this proposed rule. It is most important that the United States continue its posture of being an attractive location for foreign deposits.

[10] Your assistance in this important matter is most appreciated.