After uproar over a proposal to have banks tell the Internal Revenue Service about their customers’ annual cash-flow information, the Biden administration and congressional Democrats unveiled a new, pared-down proposal on Tuesday.
Now the question is whether this version of the proposed reporting requirement, which would kick in at the $10,000 mark instead of covering transactions above a $600 threshold, will, if it passes, win over critics and help the IRS catch tax cheats.
In the Biden administration’s bid to ensure rich households pay their full tax bill, they proposed months ago that bank, loan and investment accounts report to the IRS on their customers’ aggregate “inflow” and “outflow” above the $600 point on a yearly basis. The idea, supporters said, was to get more data points when trying to spot discrepancies for wealthy earners and carry out audits.
The reporting would apply to personal and business accounts, the Treasury Department previously said. The idea was not a big ask — at least in the eyes of the feds — because banks are already obligated to tell the IRS and account holders about much lower numbers, including a $10 threshold on accrued interest.
Critics in the banking industry and elsewhere said the $600 threshold wrongly roped in average customers.
On Tuesday, officials said they were bumping the threshold up to $10,000. That means “financial accounts with money flowing in and out that totals less than $10,000 annually are not subject to any additional reporting,” the Treasury Department said.
The proposal would exclude “wage and salary earners and federal-program beneficiaries, such that only those accruing other forms of income in opaque ways are a part of the reporting regime.”
The proposed monitoring never called for reporting on specific transactions. That’s been a “prominent misconception,” the Treasury Department said.
“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.
But the overhauls haven’t persuaded Senate Republicans. “The average American runs $61,000 through their account,” Sen. Mike Crapo of Idaho said Tuesday. “The average American will be picked up by this plan.”
Rob Nichols, president and CEO of 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,” he said.
The Treasury Department said “much more detailed information reporting exists on wage, salary, and investment income” for average workers. What would likely go away is the “existing disparity between American workers, whose income is already reported on the IRS; and disproportionately wealthy individuals who earn income in ways not visible to the IRS, and thus, are easily able to evade.”