A change made by the Internal Revenue Service will alter the way the tax agency requires a reporting of interest payments, which could affect the depositors of Texas banks.
Under the rule, which takes effect on Jan. 1, 2013, the IRS will mandate that interest paid to depositors who do not live in Texas be reported to the agency. Industry analysts said the change could mean that non-residents who have their money in banks in U.S. border states could pull their funds out of the institutions. Could this be a case of the IRS not being aware of the unintended consequences of its decisions?
A statement by the IRS announcing the change stated that the move was vital to fighting tax evasion by individuals living outside the country. The IRS said it wants to share the information about interest gained in the U.S. to encourage other governments to share similar data with the IRS.
Two U.S. representatives from a southern state have argued that they want Congress to overturn the IRS requirement, fearing non-residents would pull their money out of banks in their states and across the U.S., harming American financial institutions.
A financial industry analyst said that executives at banks in Texas and Florida especially have attempted to fight the rule, leading him to believe they worry about a withdrawal in funds from Latin American depositors.
A spokeswoman for the Treasury Department said she did not believe that theory is supported by evidence. Non-U.S. citizens gain more from a relationship with a U.S. bank than just not having interest reported to their governments, she said.
Source: Reuters, “IRS rule threatens bank capital flight: analysts,” Kevin Drawbaugh, April 17, 2012