New Prop. Regs. on bank-deposit interest paid to NRAs.

• Author: Sair, Edward A.
• Position: Nonresident aliens

In 2002, the IRS proposed new regulations (REG-133254-02) under Sec. 6049, replacing previously proposed regulations (REG-126100-00) that, in general, would have required financial institutions to report annually to the IRS all U.S. bank-deposit interest paid to any nonresident alien (NRA). Under current Regs. Sec. 1.6049-8(a), U.S. banks are required to report only U.S. bank-deposit interest paid to a U.S. person or a NRA resident in Canada.

In its explanation of the 2002 proposed regulations, the IRS concluded that the prior proposed regulations were overly broad in requiring annual information reporting for U.S. bank-deposit interest paid to any NRA. The 2002 version of Prop. Regs. Sec. 1.6049-8(a) would require additional reporting of such interest paid to residents of Australia, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden and the U.K. Payors may, at their option, choose to report U.S. bank-deposit interest paid to all NRAs or to any NKA resident in a country other than those listed.

In most other respects, the 2002 proposed regulations generally follow the approach of the prior proposed regulations. Specifically, they require the payor of U. S. bank-deposit interest to provide a copy of Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, to an interest recipient who is resident in a country for which reporting is required. In addition, like the 2001 proposed regulations, the 2002 regulations provide that, if a joint account holder is a U.S. nonexempt recipient, the payor or middleman must report the entire payment...