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Tuesday, January 21, 2014


In 2012, regulations were issued that require banks to report interest paid on deposits of nonresident alien individuals who reside in countries with an exchange of information agreement with the U.S. (even though such bank interest is usually not subject to U.S. income tax). The Florida Bankers Association and the Texas Bankers Association challenged the regulations. The D.C. District Court has dismissed their action.

One objection voiced by the bankers was that the information disclosed to the foreign governments could be disseminated and thus would injure the privacy interests of their customers. The court was unsympathetic, since the foreign governments would “pledge” to protect the privacy of the customer information.

Another objection was that there would be major capital flight as foreigners would close their accounts to keep this information out of the hands of their home country governments. The court was not convinced about this either.

Most real world practitioners will tell you that such accounts are being closed. In the policy debate between encouraging investment capital to enter and reside in the U.S. vs. tax enforcement concerns, and as evidenced by this provision and FATCA, the pendulum has clearly swung to the latter.

Florida Bankers Association, et al (DC Dist Col 01/13/2014) 113 AFTR 2d ¶ 2014-358

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