WASHINGTON-CUNA Associate General Counsel Mary Dunn testified before the Internal Revenue Service (IRS) in opposition to its proposal on reporting of deposit interest paid to nonresident aliens. Dunn was the only credit union representative to testify. “We don’t know how horrendous this is going to be,” Dunn told Credit Union Times, but she predicted the new reporting requirements would be a “huge compliance nightmare for financial institutions.” Currently the IRS only requires financial institutions to report interest paid to customers claiming to be Canadian. Under the proposal, financial institutions would have to report on all foreign nationals, including those the U.S. does not have tax treaties with. Their reasoning behind the new reg is two-fold. First, the IRS believes it would keep U.S. citizens from claiming foreign status falsely, and it will ease information sharing with nations that the U.S. has tax treaties or agreements. “We question the sufficiency of these reasons, given the burden the proposal will impose on financial institutions and that the fact the interest is not taxable,” Dunn said in her testimony. “As CUNA stated in its comment letter, we oppose the proposal because it will create compliance problems for credit unions and in our view, the costs of compliance to institutions are significantly greater than the benefits to the government, as described by the IRS in the proposal.” Dunn said she was not sure why the IRS even thought of expanding this regulation and hopes for its withdrawal. “I do feel encouraged by the fact the IRS held a hearing,” she said. The hearing means the agency is aware of the opposition, Dunn added. Dunn explained to the IRS in her testimony that volunteers often run credit unions and that credit unions are typically small, with 70% holding less than $20 million in assets. She also pointed out that credit unions are one of the most regulated entities in America. Seventeen IRS regulations already apply to credit unions, along with Treasury’s Bank Secrecy Act rules and the NCUA’s own regulations. “[T]he mounting regulatory burden that credit unions as financial institutions shoulder diverts them from their primary mission, which is to provide financial services to consumers,” she said. As an additional burden, if a credit union would have to fill out more than 250 of the Form 1042-S, they would have to do it magnetically. Credit unions do not currently have the resources to do this nor for the training involved. Generally, credit unions do not even have the proper data processing systems to identify all the nonresident aliens. Also, the postage costs must be taken into account, Dunn said. Financial institutions could run into further trouble with the treatment of joint accounts. If more than one account holder is listed from more than one country, further compliance burdens would develop because all the nations involved would have to be notified. Though this situation may sound unusual, Dunn said it could be a common problem. She advocated the regulation should only apply to the primary account holder in the instance of a joint account, if the reg is not withdrawn. Also the effective date should be extended so financial institutions have enough time to comply. In CUNA’s comment letter dated May 31, Dunn also raised the point that the IRS had given no information on how it arrived at the 15 minute per respondent compliance burden rate. “In our view, the proposal would provide only marginal benefits to the government while inflicting considerable costs on financial institutions, including credit unions,” Dunn said. [email protected]

Complete your profile to continue reading and get FREE access to CUTimes.com, part of your ALM digital membership.

Your access to unlimited CUTimes.com content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical CUTimes.com information including comprehensive product and service provider listings via the Marketplace Directory, CU Careers, resources from industry leaders, webcasts, and breaking news, analysis and more with our informative Newsletters.
  • Exclusive discounts on ALM and CU Times events.
  • Access to other award-winning ALM websites including Law.com and GlobeSt.com.

Already have an account?


Credit Union Times

Join Credit Union Times

Don’t miss crucial strategic and tactical information necessary to run your institution and better serve your members. Join Credit Union Times now!

  • Free unlimited access to Credit Union Times' trusted and independent team of experts for extensive industry news, conference coverage, people features, statistical analysis, and regulation and technology updates.
  • Exclusive discounts on ALM and Credit Union Times events.
  • Access to other award-winning ALM websites including TreasuryandRisk.com and Law.com.

Already have an account? Sign In Now
Join Credit Union Times

Copyright © 2022 ALM Global, LLC. All Rights Reserved.