Bank account monitoring proposal draws criticism, concern

A proposed plan by the Biden administration to monitor financial account activity totaling $600 or more has drawn concern from the banking industry and others who see it as burdensome and an overreach by the government, among other criticisms.

The plan is included in the infrastructure bill now being negotiated in Washington.

The administration says the goal is to collect taxes from rich individuals and businesses on income that is earned but not reported, but opponents say that the requirements would cover the vast majority of bank, loan and investment accounts.

"The administration's proposal to require financial institutions to track and submit the vast majority of their banking customer information to the IRS risks major data breaches, infringes on financial privacy and overburdens the banking system with massive data collection responsibilities, all for a purpose that is not obviously served by the proposal," said Mitch Waycaster, president and CEO of Renasant.

The genesis of the proposal occurred in May, when a document from the Department of the Treasury outlined a number of the Biden administration's revenue proposals for the 2022 fiscal year. Included in those proposals is finding a way to close what the IRS calls a tax gap of more than $160 billion - the amount of tax owned by businesses and actually paid by them. By reporting money flowing in and out of bank, loan and investment accounts totaling at least $600 in a year would help IRS enforcement measures, the proposal says.

BNA Bank CEO Bo Collins said the proposal to improve tax compliance is undermined by the relatively small threshold.

"Six hundred dollars is an awfully small sum to set as the benchmark and could cause unnecessary burden and expense on the banking industry, not to mention the invasion of privacy on citizens, depending on whether they are proposing individual transactions or total sums of transactions to be reported," he said.

Added Waycaster, "This policy proposal also undermines community bankers' efforts to reach the unbanked, who are often skeptical of working with federally regulated organizations."

BNA Bank President Mike Staten said not only would the reporting proposal be a burden for banks but it would raise the cost of tax preparation for small businesses.

"We would ask that everyone contact our lawmakers and express opposition to any new IRS reporting that leads to increased compliance costs, damages our customers relationships, and threatens customer privacy." Staten said.

U.S. Rep. Trent Kelly and U.S. Sen. Roger Wicker are siding with the banking industry.

Kelly called the proposal a "blatant federal government overreach, giving the IRS license to spy on American families, farmers, and small businesses."

"The IRS has no business micromanaging the private transactions of American citizens," Wicker said, calling on President Biden and Congressional Democrats to withdraw "this outrageous and absurd proposal immediately."

Still just a proposal for now

Proponents of the plan say the criticism is unwarranted at this time, as it is merely a proposal and not set in stone. They also say banks would not report the details on each individual transactions, like how the money was spent.

Instead banks only would report the total amount of money flowing in and out of the applicable accounts, which also including direct deposits and smartphone payments.

Treasury Secretary Janet Yellen, testifying before the Senate Banking, Housing, and Urban Affairs Committee hearing last week, said the proposed reporting rule is not overly burdensome or invasive.

"It is a proposal to add two additional pieces of easily ascertained information onto the 1099-INT Form that banks already file; namely, the aggregate inflows into the account during the year and the aggregate outflows," Yellen said. "And I think it's important to recognize that we have a tax gap that's estimated at $7 trillion over the next decade.

That is taxes that are due and are not being paid to the government that deprive us of the resources we need to do critical investments to make America more productive and competitive."