The Biden administration has revised a controversial plan that would require banks and other financial services institutions to report account data to the Internal Revenue Service (IRS) in an effort to crackdown on tax cheats.
The original proposal which sparked attention among banking trade groups, consumers, and even debt collectors would have required financial firms to report aggregate data for all accounts with at least $600 flowing in and out annually. Under the revised plan, firms would still be required to report account data from all personal and business accounts, but the threshold has been increased to $10,000, meaning accounts with less than $10,000 flowing in and out each year would not be subject to the rules.
The proposal would N, as some critics have said, allow the IRS to track individual transactions, and banks would not be required to report individual transactions to the IRS. Rather, according to a fact sheet supplied Tuesday by the U.S. Treasury, “banks would add two additional data points to the information that is already supplied to tax the IRS: The total amount of money flowing in and out of an account in the course of a year, with breakdowns for foreign transactions and transfers to the same account holder.
The Treasury argues this data will help the IRS better focus its audits on wealthy people who are evading their tax responsibilities, as opposed to spending resources on audits of people who are tax compliant.
“Today’s Congressional tax compliance proposal reflects the Administration’s strong belief that we should zero in on those at the top of the income scale who don’t pay the taxes they owe while protecting American workers by setting the bank account threshold at $10,000 and providing an exemption for wage earners like teachers and firefighters,” Yellen said in a statement.
During a call with reporters, Wyden pointed out that IRS commissioner Charles Rettig testified that the tax gap could be as high as $1 trillion per year. He said the information reporting proposal would narrow the gap, which represents the amount of taxes owed versus the amount paid. Wyden said the proposal is specifically designed to target the wealthiest tax cheats.
Democrats are hoping to salvage a proposal they say is key to paying for the administration’s ambitious social and economic agenda. However, the scaled-back version does not seem to have appeased critics. “Every American should be wary of giving the IRS more power and more tentacles into private financial transactions,” tweeted Republican Senator Mike Crapo of Idaho.
Ryan Donovan, executive vice president of the Credit Union National Association, called the plan “a walking nightmare” in a statement. “Every time this proposal changes, it gets worse,” he said. “For the country’s minimum wage workforce, there is no fundamental difference between a $600 reporting threshold and a $10,000 reporting threshold.”
Rob Nichols, president, and CEO of the American Bankers Association was also unconvinced. “Even with the modifications announced today, this proposal still goes too far by forcing financial institutions to share with the IRS private financial data from millions of customers not suspected of cheating on their taxes,” he said.
The proposal will still raise “privacy concerns, increase tax-preparation costs for individuals and small businesses, and create significant operational challenges, particularly for community banks,”