On January 6, 2011, the Internal Revenue Service (the IRS) issued proposed regulations that would require certain U.S. offices of financial institutions to file annual reports of interest paid to nonresident alien individuals. The proposed regulations withdraw proposed regulations issued in 2002, which themselves withdrew proposed regulations issued in 2001. The 2001 proposed regulations required U.S. banks to annually report interest income paid to all nonresident alien individuals. After receiving a great deal of criticism, the IRS concluded that those regulations were “overly broad” and, in 2002, withdrew them and issued new proposed regulations. The 2002 proposed regulations required U.S. banks to annually report interest paid to a nonresident alien individual who was a resident of Australia, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, and the United Kingdom.
As stated above, the new proposed regulations withdraw the 2002 proposed regulations and extend the information reporting requirement to all nonresident alien individuals. The IRS stated that the extended reporting requirements were appropriate for three reasons. First, since 2002, the IRS believes there has been a growing global consensus regarding the importance of cooperative information exchange with other countries. Second, the IRS believes that requiring routine reporting of all U.S. bank deposit interest paid to any nonresident alien individual will further strengthen the U.S. information exchange efforts. Third, the IRS believes the new proposed regulations will help improve voluntary compliance by U.S. taxpayers by making it more difficult to avoid the U.S. information reporting system (such as through false claims of foreign status).
The proposed regulations would apply to payments made after December 31 of the year in which they are published as final regulations in the Federal Register. A public hearing is scheduled for April 28.