In 2001, the I.R.S. and Treasury Department published proposed regulations which would have provided that U.S. bank deposit interest paid to nonresident alien individuals ("NRAs") would be reported annually to the I.R.S. In 2002, the proposed regulations were withdrawn and narrower proposed regulations were published that would require reporting only interest payments to NRAs of certain designated countries. The 2002 proposed regulations were never finalized.
In January 2011, the I.R.S. and Treasury Department withdrew the 2002 proposed regulations and published new proposed regulations which would again require the information reporting of interest paid to NRAs of any foreign country.
The rationale for the rule appears to be that the I.R.S. would like to receive information with respect to interest paid by foreign banks to U.S. citizens and U.S. residents from other countries. As a quid pro quo, the tax authorities of other countries would like to receive similar information from the U.S. However, the I.R.S. cannot provide this information to other countries if it doesn’t even collect the information. Thus, the new proposed regulations would require the collection of this information.