IRS Updates List of Countries Subject to Bank Interest Reporting Requirements

The IRS has issued Revenue Procedure 2017-31 to supplement the list of countries subject to the reporting requirements of Code section 6049, which generally relate to reporting on bank interest paid to nonresident alien individuals.  This was an expected move, as this list of countries, originally set forth in Revenue Procedure 2014-64 and modified a handful of times since, will likely continue to expand as more countries enter into tax information exchange agreements with the U.S. in order to implement the Foreign Account Tax Compliance Act (FATCA).  Specifically, Revenue Procedure 2017-31 adds Belgium, Colombia, and Portugal to the list of countries with which Treasury and the IRS have determined the automatic exchange of information to be appropriate.  Unlike the last set of additions to the list, set forth in Revenue Procedure 2016-56 (see prior coverage), no countries were added to the list of countries with which the U.S. has a bilateral tax information exchange agreement.

Prior to 2013, interest on bank deposits was generally not required to be reported if paid to a nonresident alien other than a Canadian.  In 2012, the IRS amended Treas. Reg. § 1.6049-8 in an effort to provide bilateral information exchanges under the intergovernmental agreements between the United States and partner jurisdictions that were being agreed to as part of the implementation of FATCA.  In many cases, those agreements require the United States to share information obtained from U.S. financial institutions with foreign tax authorities.  Under the amended regulation, certain bank deposit interest paid on accounts held by nonresident aliens who are residents of certain countries must be reported to the IRS so that the IRS can satisfy its obligations under the agreements to provide such information reciprocally.

The bank interest reportable under Treas. Reg. § 1.6049-8(a) includes interest: (i) paid to a nonresident alien individual; (ii) not effectively connected with a U.S. trade or business; (iii) relating to a deposit maintained at an office within the U.S., and (iv) paid to an individual who is a resident of a country properly identified as one with which the U.S. has a bilateral tax information exchange agreement.  Under Treas. Reg. § 1.6049-4(b)(5), for such bank interest payable to a nonresident alien individual that exceeds $10, the payor must file Form 1042-S, “Foreign Person’s U.S. Source Income Subject to Withholding,” for the year of payment.