An aggressive industry campaign against a Biden administration proposal to report bank account information to the Internal Revenue Service continued on Thursday as more than 100 trade groups and other organizations sent a joint letter to congressional leaders voicing opposition to the proposal.
The letter was sent the same day the U.S. Department of the Treasury issued a statement defending the proposal that the Biden administration says would raise revenue by increasing compliance with tax laws.
Groups including the Independent Community Bankers of America, American Bankers Association, National Association of Federally-Insured Credit Unions, Mortgage Bankers Association and National Association of Realtors sent the letter to House and Senate leadership yesterday to express the groups’ “strong opposition” to requiring financial reporting.
“Intended to help the IRS target wealthy tax dodgers, the unintended consequence is the overly broad proposal will directly impact almost every American and small business with an account at a financial institution,” the letter said.
The Biden administration’s proposal would require that banks and credit unions report to the Internal Revenue Service how much money went into an account during the year and how much came out. The current proposal would apply to accounts with $600 or more in activity, though congressional Democrats have been negotiating a deal to increase the threshold to $10,000. Other considerations include exempting amounts in bank accounts that come from payroll processors and other types of payments, such as mortgages.
Natasha Sarin, Treasury’s deputy assistant secretary for economic policy, said in yesterday’s statement that financial reporting would help the IRS determine “whether taxpayers with opaque sources of income are meeting their tax obligations.”
“Why is aggregate information about account inflows and outflows useful? Because currently the IRS has no knowledge about whether taxpayers who earn income in hard-to-track ways are making good on their annual tax obligations,” Sarin said. “Taxpayers who want to shirk their tax obligations know about and exploit this information shortfall.”
The IRS would not increase the rate at which the agency audits individuals who earn less than $400,000, Sarin said, noting that “IRS scrutiny will be focused on the high end of the income distribution, where it belongs, given the distribution of the tax gap.”
Sarin said revenue generated from collecting taxes from the wealthy would support for the proposed initiatives in the Biden administration’s Build Back Better agenda.
The trade groups’ letter to congressional leaders raised concerns about financial privacy, increased tax preparation costs for individuals and small businesses, and operational challenges for financial institutions. The letter said the proposal to increase the threshold to $10,000 would not significantly reduce the scale of the IRS program, and the trade groups said that exempting certain amounts from financial reporting would add to the challenges.
“These new proposed exceptions only add significant operational complexity for financial institutions and will not materially reduce the tens of millions of American taxpayers who would be subjected to the new reporting regime,” the letter said. “We continue to urge members to oppose any efforts to advance this ill-advised new reporting regime.”
The trade groups also questioned why financial reporting would be needed for certain taxpayers if audits would not increase for those making less than $400,000.
“We believe that this program is costly for all parties, not fit for purpose, and loaded with the potential for unintended and serious negative consequences,” the letter said. “As associations representing a broad cross-section of financial and business interests, we urge you to oppose any efforts to institute this new reporting regime.”
Other groups signing the letter included the Community Development Bankers Association, Consumer Bankers Association, Credit Union National Association, National Bankers Association, American Hotel & Lodging Association, American Rental Association and American Land Title Association.
