Federal Court Rejects Efforts to Diminish Measures Aimed at Reducing Offshore Tax Avoidance

As of January 1, 2013, United States banks were required to report to the IRS interest earned by nonresident aliens who are residents of certain foreign countries. The reporting requirement previously existed for accounts held by nonresident aliens residing in Canada, but now extended to all other countries with which the United States had an income tax treaty or information exchange agreement.

Holland & Knight attorneys, Victor Perez and Daniel Martinez, wrote about the legislation shortly after the United States Department of the Treasury issued the final regulations on April 19, 2012. 

Last year the Florida Bankers Association and Texas Bankers Association filed a lawsuit seeking to have the 2012 Final Regulations dismissed as being overly burdensome and on the grounds that they would discourage foreign investment from residents of countries with unstable or corrupt governments.

On January 13, 2014, the District Court in the District of Columbia dismissed the lawsuit. (Click for memorandum of dismissal.) Judge James E. Boasberg wrote that "[r]eciprocity is the key to success in such treaties. If the United States does not gather and report tax information for foreign accountholders, then other countries have little incentive to provide us with similar information."

In a Department of Justice news release announcing the dismissal of the lawsuit, Assistant Attorney General Kathryn Keneally of the Tax Division stated, “[t]his ruling advances the Department of Justice’s and Internal Revenue Service’s continuing efforts to pursue taxpayers trying to evade taxes through offshore accounts. The court’s opinion today represents an important step in our commitment to work with our treaty partners to eliminate cross-border tax evasion." (click link for Justice release.)