IRS Proposal May Affect Banks in the Long Run Published December 30, 2011
A recent article from CNBC reveals the uncertainty brewing around a new IRS proposal that involves non-resident bank accounts (NRA’s). The IRS rule is raising some eye brows among South Florida banks and others because it proposes a new tax on accounts held by foreigners.
For the time being, interest collected on non-resident U.S. bank and credit union accounts are not taxed, but that could soon change according to the US Treasury. The IRS proposed rule would require banks to report all the interest earned on these accounts.
This worries NRA holders and bankers alike who claim that the financial system in the U.S. has greatly benefited from these foreign deposits. Banks argue that these large deposits are used in the lending process to small businesses and help create jobs and other financial opportunities.
According to the article, and the Commerce Department, there is nearly $10.6 trillion invested in the American economy including approximately $3.6 trillion reported by U.S. banks and securities brokers by these foreign deposits.
Alex Sanchez, President and CEO of the Florida Bankers Association shares this uncertainty. Sanchez states, “For us in Florida most of our NRA’s are from Venezuela, Brazil and Mexico and other Central and South American countries. In California its Asia, Texas it’s Mexico. Another concern is if people withdraw their monies from U.S. banks and close their FDIC bank accounts, they may also divest themselves from their real estate holdings. For instance, the Brazilians have helped the Florida’s housing market recover substantially ”
This issue has the potential to affect many people not just banks. From a bank-lending perspective the rule could be especially detrimental. “Border” states such as Texas, Florida, and California may suffer. Click to read more about the IRS Tax Rule to gain more insight.