Final regs. on reporting interest on deposits paid to foreign taxpayers.

• Author: Nevius, Alistair M.

The IRS issued final regulations under Sec. 6049 outlining the rules requiring U.S. financial institutions to report interest payments to certain nonresident alien individuals of $10 or more per year paid after Dec. 31, 2012 (T.D. 9584).

The IRS explained that the new rules are part of the process of improving the detection of tax evasion worldwide. Having this information available to give to other countries will help the United States gain their cooperation in implementing the Foreign Account Tax Compliance Act (FATCA). The IRS also says the information will improve U.S. tax compliance by making it more difficult for U.S. taxpayers with U.S. deposits to falsely claim they are nonresidents.

The new rules apply to commercial banks, savings institutions, credit unions, securities brokerages, and insurance companies that pay interest on deposits. They require the payer to file Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, for the calendar year in which interest is paid to nonresident alien account holders (Regs. Sec. 1.6049-4(b)(5)).The payer must also send a copy of the form to the account holder together with a statement explaining that it is furnishing the information to the IRS (Regs. Sec. 1.6049-6(e)(4)).

A payment of interest to a nonresident alien individual that is subject to this reporting requirement is not subject to backup withholding under Sec. 3406 if the payer may...