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US: District court denies bankers associations’ challenge to bank reporting regulations

Wednesday, 23 April 2014   (0 Comments)
Posted by: Author: Shearman & Sterling LLP
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Author: Shearman & Sterling LLP

On January 13, 2014, the US District Court for the District of Columbia issued a decision denying a motion for summary judgment filed by the Florida Bankers Association and the Texas Bankers Association challenging new regulations requiring banks to report interest paid to certain nonresident aliens to the IRS.

1 The regulations, which were issued in 2012, require that US banks report information about accounts earning more than $10 of interest that are held by non-resident aliens.

2 The reporting requirement only applies to non-resident aliens that are from countries with which the United States has a tax treaty or an agreement to exchange tax information. The bankers associations asserted that the regulations violate the Administrative Procedure Act (the "APA") and the Regulatory Flexibility Act (the "RFA") because they will be more harmful to banks than the IRS realized when it originally estimated the economic effect of the regulations.

The court rejected the bankers associations' APA challenge because the IRS met the requirement under the APA that an agency examine the relevant data and demonstrate a connection between the facts and the choice made by the agency. The court noted that, although exact data regarding the amount of money non-resident aliens have deposited in US banks was not available, the IRS was able to estimate the amount using a "mountain of existing information.

"3 Furthermore, the court found it was "hardly arbitrary or capricious" for the IRS to extend the reporting requirements, which were already applicable with respect to Canadians, to residents of the other countries with which the IRS has a tax treaty.

4 The court determined that the IRS was reasonable in its analysis of privacy concerns with respect to the disclosure of the bank account information, and the IRS properly weighed the costs and benefits of the risk of capital flight as a result of tax evaders withdrawing funds from the banks.

With respect to the RFA challenge, the court found that the IRS reasonably concluded that the regulations would not have a significant economic impact on small businesses because US financial institutions already have systems in place to withhold and report with respect to US customers. Thus, the regulations did not violate the RFA.

The bankers associations announced on February 4, 2014 that they are appealing the court's dismissal of their motion for summary judgment.


Florida Bankers Assoc. v. Treasury, No. 1:13-cv-00529 (D.D.C. 2014) (slip op.).

2 T.D. 9584.

Florida Bankers Assoc., No. 1:13-cv-00529.

4 Id.

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