Information Reporting – Interest Paid to Non-U.S. Individuals on U.S. Bank Deposits: IRS and the Treasury Department Issue Final Regulations Requiring the Reporting of Interest or Original Issue Discount (“OID”) Paid to Nonresident Alien Individuals on Bank Deposits

Sullivan & Cromwell LLP - April 20, 2012
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On April 17, the IRS and Treasury Department released final regulations (the “Final Regulations”) that require banks to annually report to the IRS the amount of interest earned on U.S. bank deposits held by nonresident alien individuals residing in countries with which the U.S. has in effect an income tax treaty or other convention or bilateral agreement providing for the exchange of information. Such reporting is currently only required for interest earned on the bank deposits held by U.S. citizens or residents, and nonresident alien individuals who reside in Canada. The Final Regulations are more limited than the regulations proposed in January, 2011 (the “Proposed Regulations”), which would have extended such reporting to all nonresident alien individuals regardless of their country of residence.

The IRS also released Revenue Procedure 2012-24, which lists the countries with which the United States is treated for this purpose as having in effect an income tax treaty or other convention or bilateral agreement providing for the exchange of information.

This new reporting requirement is aimed at combating tax evasion, in part by bolstering the IRS’s efforts to increase the mutual exchange of tax information with other jurisdictions. In particular, the implementation of FATCA will rely in part on information exchange agreements entered into with other jurisdictions and information provided to the IRS pursuant to such agreements.

On the same day that the Final Regulations were released, bills were introduced in the Senate and the House of Representatives that would block the implementation of the Final Regulations.

The Final Regulations are effective for payments made on or after January 1, 2013.