Banks Oppose Biden’s New Proposal on IRS Reporting
WASHINGTON—Opposition is growing to a new proposal aimed at curbing tax evasion that would be part of the $3.5 trillion reconciliation package under consideration by Congress.
The proposal, which is being pushed by the Biden administration, would require banks and other financial institutions to report to the Internal Revenue Service (IRS) any deposits or withdrawals totaling more than $600 to or from all business and personal accounts.
The American Bankers Association (ABA), along with over 40 business and financial groups, sent a letter on Sept. 17 to House Speaker Nancy Pelosi (D-Calif.) and House Minority Leader Kevin McCarthy (R-Calif.) objecting to the “ill-advised” reporting proposal.
“While the stated goal of this vast data collection is to uncover tax dodging by the wealthy, this proposal is not remotely targeted to that purpose or that population,” the letter stated.
“In addition to the significant privacy concerns, it would create tremendous liability for all affected parties by requiring the collection of financial information for nearly every American without proper explanation of how the IRS will store, protect, and use this enormous trove of personal financial information.”
The Biden administration has been pushing Democrats to include the proposal in the $3.5 trillion spending bill in an effort to address tax evasion, mainly by wealthy people.
With the new reporting rule, “the wealthy can no longer hide what they’re making,” President Joe Biden said on Sept. 16 during a speech on the economy.
“That isn’t about raising their taxes,” Biden added. “It’s about the super-wealthy finally beginning to pay what they owe.”
A report released by the Treasury in May stated that the new reporting rule would help “raise $460 billion over the next decade.”
Almost every banking transaction and even transfers between one’s accounts would be aggregated and reported to the IRS, according to Paul Merski, group executive vice president at the Independent Community Bankers of America (ICBA), which represents nearly 5,000 community banks in the United States.
“It’s a dragnet, it’s a collection of data in the scale that we’ve never seen before in the financial sector,” Merski told The Epoch Times.
ICBA is among the financial groups that strongly oppose Biden’s proposal, calling it an “overreach” by the federal government.
Banks already report a tremendous amount of data to the IRS. According to a U.S. Government Accountability Office report, more than 3.5 billion information returns were received by the IRS for tax year 2018. A large number of these come from banks, ABA says. These include reporting interest paid on bank accounts, dividend income, brokerage transactions, mortgage interest, and more.
Under the Bank Secrecy Act, U.S. financial institutions also report to the government all wire transfers over $10,000 as well as suspicious cash transactions to prevent criminal activities such as money laundering.
“Banks are already reporting billions of pieces of information and you’re getting to the point where the banks are becoming the police force for the IRS,” Merski said.
“I don’t think people, small business owners know about this profiling that the IRS wants to put together,” he added. “So, it’s basically a profiling; they want to see your transactions and create a profile on you, and if they don’t like what they see, then they can go after you.”
Treasury Secretary Janet Yellen sent a letter to House Ways and Means Committee Chairman Richard Neal (D-Mass.) last week, asking Democrats to include a “sufficiently comprehensive” reporting provision in the bill “so that tax evaders are not able to structure financial accounts to avoid it.”
It is unclear whether some version of the proposal will make it into the final bill, but the Ways and Means Committee left out the administration’s proposal in the legislation approved by the committee due to the growing backlash.
Neal, however, indicated that the committee is in discussions with the administration on various proposals to increase reporting requirements.
According to Merski, the provision could be added back to the budget reconciliation bill at any stage in the process, especially at the last minute. The bill only needs a simple majority to pass in the Senate.
“Our fear is that this is so onerous that they’re waiting to the last second to put this in, but they’re dead serious about putting this proposal in,” he said.
An ICBA poll conducted by Morning Consult found that 67 percent of voters oppose the new IRS reporting proposal.
“The provision is a violation of Americans’ privacy rights and would be a crushing burden on community banks and credit unions struggling in the midst of the pandemic,” John Berlau, a senior fellow at the Competitive Enterprise Institute, told The Epoch Times.
“The IRS already gets plenty of data on taxpayers through forms such as 1099s, and does not need instant access to these small transactions to go after tax cheats,” he said.
According to the Treasury Department, Biden’s proposal is “integral to addressing evasion.”
The tax gap disproportionately benefits wealthy people because their income mainly comes from “non-labor sources where misreporting is common,” the Treasury report stated.
“The tax gap totaled nearly $600 billion in 2019 and will rise to about $7 trillion over the course of the next decade if left unaddressed.”