Letting the IRS In Your Bank Account: Separating Fact from Fiction


By John Kinsella
ABA point of view

AAs the congressional debate over the Biden administration’s Build Back Better program continues on Capitol Hill, public opposition to a proposal that would have a significant effect on banks and their customers grows. To reduce the tax gap, the administration proposes to require financial institutions to share annual entry and exit data on almost all account holders in the country.

Given the radical nature of the proposal and the impact it would have on ordinary Americans, and not just those suspected of cheating on their taxes, the public opposition is not surprising. What was surprising was that some misinformation shared by supporters, especially given the limited details provided by the administration.

Unlike a comment referring to a bill, amendment or official provision, the administration did not share any actual legislation. The only written description is from the Treasury “Green bookAnd is reproduced below:

This proposal would create a full reporting regime for financial account information. Financial institutions would report financial account data in an information return. The annual report will report gross inflows and outflows with a breakdown for physical cash, transactions with a foreign account and transfers to and from another account with the same holder. This requirement would apply to all professional and personal accounts financial institutions, including bank, loan and investment accounts, except for accounts with a de minimis gross cash flow threshold less than $ 600 or a fair market value of $ 600. (Emphasis added)

In recent weeks, the ABA and others who have spoken out against this proposal have been criticized by various supporters for taking a stand against a proposal that our members, the small business community and millions of bank customers are considering. as an unfair overrun which will have significant negative consequences. These statements include implications that we advocate for “tax cheats”, providing ourselves with misinformation and exaggerating the difficulties that banks will encounter in implementing this proposed regime. Nothing could be further from the truth.

Focus on the real problem

ABA firmly believes that taxpayers should pay what they owe. To suggest otherwise is wrong. If there are dark sources of revenue, let’s focus on this challenge head on rather than collecting excessively information from everyone in the hope that they will bring to light a small number of tax frauds. The IRS currently has important tools to target those suspected of tax evasion without having to rely on this brutal instrument that will capture the personal financial data of millions of Americans not suspected of tax evasion.

A slippery proposition

From the start, ABA’s advocacy has been based on the above proposition. We read it directly and received comments from bankers and their clients. This is the only proposal that we – or anyone outside of the negotiations – must pursue and it is largely in line with the statements of the administration officials we have spoken to. Our public and private concerns have been constant since the publication of the Green Paper. They include concerns about the large amounts of information that would be created and stored, including concerns related to data security and privacy, the disconnect between the narrow purpose of the proposal and its broad and deep scope, l ” likely inability of the IRS to manage and use this information effectively, the additional cost for taxpayers to assess this information with their tax preparers, and the significant operational challenges for financial institutions struggling with a complicated reporting regime and expensive to implement, especially for small institutions. We are also concerned that this proposal could undermine customers’ hard-earned trust in their financial institutions to keep their personal information safe.

Media reports and draft summaries floating around Congress suggest the proposal could be amended, with a higher de minimis threshold and possibly exclusions and exclusions to reduce the scale of the program. In fact, a set of discussion points from supporters suggests that the original proposal, pasted above, is itself a “myth”. If there is a new proposal to consider, it should be shared publicly so that all can see its real implications. Until then, we will continue to raise the legitimate and valid concerns shared by our members, and more importantly, by their clients who continue to express growing opposition to the proposal.

We welcome a debate on the merits of any proposal, but we steer clear of the suggestion that any banker, bank client, or small business owner who has even a minimum expectation of confidentiality and opposes it. program must be a tax evader. This country has a long and honorable history of challenging general government data collections with narrow or ill-defined goals. Given its broad scope, this proposal deserves the same careful consideration.

Discern the details

Given the complexity of the proposal and the lack of details to date beyond the Green Paper, some have been confused as to the definitions of transaction details versus annual gross inflows and outflows. We believe this shouldn’t undermine fundamental concerns about privacy and other issues. That said, requiring information on account transfers, cash allocation, and other factors may be seen by some as transaction details, and more exclusions are discussed (e.g., payroll company deposits), plus the data sent to the IRS will look like specific and detailed transactional information.

The proposal foresees the collection of a significant amount of additional data. Some words and phrases are italicized above. To suggest that the proposal is simple or is aimed at the rich is simply not true. In fact, recent statements by policymakers suggest that the proposals would indeed affect a wide range of taxpayers; and even target small business owners.

Administration officials said implementing this proposal would be straightforward and would be like adding a few boxes on the 1099-INT form. Based on the language of the Green Paper above, these statements indicate a lack of appreciation of the existing reporting processes and requirements and the significant scope of new reporting that this proposal would require. In reality, a recent New York Times item said Treasury officials are “baffled” by concerns raised by the banking sector. Based on the meetings we have held with the Treasury and other policy makers, as well as the significant amount of information provided based on input from bankers.we are baffled that policymakers have somehow heard that this proposal is straightforward and that compliance costs would be minimal. It’s just not the feedback provided by our members. It also does not pass the common sense test given the millions of accounts that will be captured by this proposal.

We understand that there may be different views as policies are debated, and we recognize the public interest in closing the tax gap. We strongly believe, however, that this proposal goes too far and judging by the public response to date, many Americans agree. We will continue to share our good faith perspective and provide factual information to our members and their clients that can help the administration and Congress make the right decision.

Simply put: this proposition is not the way to solve this problem. Many of this law-abiding and tax-abiding nation’s citizens agree, and as more Americans learn the details, we expect that number to increase.

John Kinsella is vice president of tax policy at ABA.

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