The Biden administration on Tuesday endorsed a scaled-back version of a proposal that could force banks to turn over customers’ account information to the Internal Revenue Service under growing criticism from banking groups and Republicans.
Under a new plan that Senate Democrats are expected to unveil, banks, credit unions and other financial institutions would be required to report annually on accounts with deposits and withdrawals worth more than $10,000, rather than the $600 threshold that President Biden initially proposed.
“Today’s new 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,” Treasury Secretary Janet Yellen said in a statement.
Banks are already required to report any transaction that exceeds $10,000 to the Financial Crimes Enforcement Network – part of anti-money laundering requirements.
The tightening of the plan follows a steady lobbying campaign from banking groups and other industry organizations that warned the original proposal would increase compliance costs and add to the already existing burden the industry faces in turning over information to the government, while Republicans have slammed it as the worst type of government overreach.
In a September letter addressed to House Speaker Nancy Pelosi, D-Calif., and Minority Leader Kevin McCarthy, R-Calif., more than 40 banks urged lawmakers to vote against such a proposal, warning it could create a “tremendous liability” for all involved by requiring the collection of financial information for the majority of Americans “without proper explanation of how the IRS will store, protect and use this enormous trove of personal financial information.”
“This proposal would create significant operational and reputational challenges for financial institutions, increase tax preparation costs for individuals and small businesses, and create serious financial privacy concerns,” they wrote. “We urge members to oppose any efforts to advance this ill-advised new reporting regime.”
The White House defended the plan, writing in a memo to congressional Democrats that requiring banks and financial institutions to provide a “little bit of high-level information” to the IRS on account flows gives the agency more information about wealthy Americans’ earnings from investments and business activity.
It has stressed that banks will not have to report individual transactions to the IRS, but rather “basic, high-level information on account inflows and outflows” and that audit rates for Americans earning less than $400,000 annually would not go up.
“Imagine a taxpayer who reports $10,000 of income; but has $1 million of flows in and out of their bank account,” the administration said in a memo to congressional Democrats. “Having this summary information will help flag for the IRS when high-income people under-report their income (and under-pay their tax obligations).”
The Treasury Department estimated the original version of the plan could generate as much as $700 billion over the next decade, revenue that would be used to pay for Democrats’ sweeping social spending plan.
Even with the slimmer scope, however, Republicans have continued to slam the contents of the bill.
“This is a terrible idea. It should never see the light of day,” Sen. Pat Toomey, R-Pa., said Tuesday.
Author : Megan Henney
Source : Fox Business : Biden administration scales back IRS bank-monitoring plan amid growing pushback