December 10, 2016
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Latino Bank's President Warns Against Proposed IRS Regulation

LAREDO, TX - Dennis Nixon, President of International Bank of Commerce, the largest Hispanic-owned bank in the United States sent the following letter to IRS Commissioner, Doug Shulman, detailing the negative impact that a proposed regulation could have on the national economy:

 

 Mr. Douglas H. Shulman
Commissioner
Internal Revenue Service

Re: Internal Revenue Service proposed regulation -- Guidance on Reporting Interest Paid to Nonresident Aliens (REG-146097-09) RIN 1545-BJ01

Dear Commissioner Shulman:

As President of International Bank of Commerce ("IBC"), Laredo, Texas, a Texas state-chartered bank with assets of nearly $10 billion, I appreciate this opportunity to comment on the Internal Revenue Service (the "IRS") proposed regulation -- Guidance on Reporting Interest Paid to Nonresident Aliens (REG-14097-09) RIN 1545-BJ01. IBC is the largest Hispanic-owned bank in the continental United States. Moreover, IBC is one of the most prominent financial institutions in the largest state bordering Mexico and conducts an enormous amount of cross border business, and accordingly, IBC has a strong and intimate understanding of the negative impact this proposed regulation would have on our national economy, on nonresident foreign depositors, and on U.S. financial institutions.

The United States of America does not tax the interest that is paid on U.S. bank deposits held by nonresident foreign depositors as long as they comply with U.S. certification requirements. For many decades Congress has intentionally chosen not to tax this kind of interest with the specific goal of attracting foreign investment capital to support our economy. Due to the fact that this interest is not taxed, U.S. banks are not required to report it to the IRS, with the lone exception of interest paid to nonresident Canadian depositors.

The proposed regulation referenced above would add a new reporting burden by requiring U.S. banks to report annually to the IRS regarding the interest paid to the accounts of all foreign depositors. This is not a new idea. In fact, this proposed regulation, or some variation, has been unsuccessfully attempted at least twice before by the IRS. Both times the proposal received overwhelming opposition. This time is no different, and in addition to the opposition by the banking community and the business community, there is again strong bipartisan opposition in the Congress. Moreover, there is a sound basis for this continued opposition.

In February 2004, in response to the attempt by the IRS to adopt a rule that would have required reporting on nonresident accounts of foreigners from fifteen countries, an analysis was conducted and published by George Mason University professor Jay Cochran which estimated that $88.1 billion in nonresident foreign deposits would likely be withdrawn from U.S. banks if the rule was adopted.1 That amount was based on the deposits from only fifteen countries. The current proposal seeks information regarding all foreign countries, which would by comparison indicate the loss of sums so large it would likely send our fragile economy into a tailspin and threaten the stability of our currency. Our nation's economy is in the midst of a fight to recover from the worst recession since the Great Depression. It is simply nonsensical that the IRS would cavalierly risk losing such a vital source of capital at a time when funds for lending and investment purposes are so desperately needed. While many countries seek these deposits to support investment and economic growth, the IRS is creating an extremely negative environment to recruit new deposits. Further, this conflicts with the almost uncontrolled need for foreign funding of our U.S. debt since much of the money deposited in banks by foreigners is used to purchase government securities. Indeed, as there is clearly no intent to tax nonresident foreign depositors, it is ludicrous to gamble with our nation's economic future by proposing such an unnecessary and inappropriate rule. IRS arguments that the rule will be used to share information with foreign governments or to prevent U.S. citizens from gaming the system strained credulity in past efforts, just as they do today. The IRS is clearly being penny wise and dollar foolish, and this proposal should be abandoned.

One need only read about the unrest and upheaval in countries around the world today in order to have some understanding of the reasons nonresident foreign depositors choose to place their funds in U.S. banks. Concerns regarding unstable governments and political environments are reason enough to utilize a system that is by comparison a model of stability and trust. Every crisis results in money flowing into the U.S. seeking safe haven. The flight to safety is a daily topic of discussion on most business media programs. We should not allow the IRS through this ill-conceived regulation destroy the USA's safe haven status.

Add to those concerns the fact that personal security is commonly a reason for moving funds to the United States. Foreign citizens fear that their personal bank account information will be leaked by unauthorized persons in their home governments to criminal or terrorist elements. Such unauthorized leaking of information leads to kidnappings and other heinous crimes committed against nonresident foreign depositors and their family members. As we know on the Texas border with Mexico, these concerns and fears are real. On the street in most countries south of the U.S. border, it is common knowledge that private banking information is readily available to the criminal elements who use the new information to extort the public. As bankers, we take very seriously our role in providing a stable, safe, and secure environment for nonresident foreign depositors because we know how much safety means to these depositors. It is a matter of life and death. The IRS provides no mechanism to protect such depositors, and turns a blind eye toward their fears and concerns about human safety in the rush to obtain unnecessary information. With the world in turmoil, we must withdraw this proposal.

Furthermore, it is ironic that during a time in which the U.S. Government is looking to community banks to be the driving force in increasing lending to small businesses, that same government is willing to place unnecessary, burdensome, and unfair regulations and expense on the very institutions in which they place the hopes of the nation. This proposed rule will negatively impact the balance sheets of our financial institutions and cause the transfer of hundreds of billions of dollars in capital to financial institutions in other countries that respect privacy protections, and significantly retard our ability to invest and lend in the US economy.

In sum, we request that this ill-conceived proposal be withdrawn, and that the United States continue its current policies of encouraging economic growth by attracting nonresident foreign depositors to place their funds in U.S. banks, of protecting the privacy of nonresident foreign depositors, protect the US's safe haven status, and refuse to place on our banks the unnecessary burden of reporting interest on these accounts.

Thank you for this opportunity to comment.

                Respectfully submitted,

                Dennis E. Nixon
                International Bank of Commerce
                Laredo, Texas

 


STORY TAGS: Hispanic News, Latino News, Mexican News, Minority News, Civil Rights, Discrimination, Racism, Diversity, Latina, Racial Equality, Bias, Equality

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