Biden plan would give IRS more power to track $600 bank accounts
President Joe Biden's $3.5 trillion budget reconciliation plan includes a laundry list of wishes touching everything from Medicare to child care to electric vehicles. One of the more controversial proposals that might be included would give the Internal Revenue Service more scrutiny over bank accounts.
The proposal would require banks, credit unions and other financial companies to monitor deposits and withdrawals in accounts that have balances above $600 at any time during the year. That would include the vast majority of personal and small-business accounts.
Critics say this would burden financial institutions with new requirements and expose consumers and businesses to privacy incursions and possible data breaches. Supporters contend bank customers would face no new obligations while giving the IRS more information to pursue tax cheats, primarily among the wealthy. They hope to close a tax gap estimated at around $600 billion annually.
What's the basic proposal?
The idea is to require banks, credit unions and other providers of financial services to track and submit information to the IRS about the total inflows and outflows of every account that features a balance above $600 at any point during the year or with at least that much in annual transactions.
Reports submitted by banks to the IRS would break down the numbers to include physical-cash transactions per account, any transactions with a foreign account and transactions between accounts held by the same owner. The IRS wouldn't receive details on individual transactions but, rather, gross yearly totals.
The $600 figure isn't set in stone. Some media reports have indicated it could be increased to, say, $10,000 - the level at which banks report transactions in an effort to combat money laundering.
Will consumers need to do anything?
A Treasury summary of the plan indicated there would be no further recordkeeping or reporting requirements for individuals or businesses and that taxpayers wouldn't face any burdens at all. The Treasury also noted banks and other financial providers already have access to this information and already report interest income above $10.
Financial institutions would report the information on an expanded Form 1099-INT. Treasury Secretary Janet Yellen said the forms would include one box for total deposits or inflows and one box for total withdrawals or outflows.
While the forms wouldn't list taxable transactions, customers still might be confused about what to do with the information, wrote Scott Earl, president and CEO of Mountain West Credit Union in a commentary in the Arizona Republic.
Would banks face new
Yes. Banks and other financial institutions would need to track and report all of this new transaction activity to the IRS. That could drive up their costs and possibly result in more fees being passed along to customers.
"The fact that raw data exists somewhere in a system does not mean
obligations? it is easily compiled or produced," stated a letter sent to congressional leaders by the Consumer Bankers Association, the American Bankers Association and nearly 40 other financial and industry groups.
Would banks face more liability? Possibly. Privacy concerns are one of the key criticisms of the proposal, especially if they resulted from a data breach. It doesn't help the White House case that a recent leak exposed incometax information for 25 of the wealthiest Americans. Details of their personal records were obtained and disclosed by ProPublica.
"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," stated the letter from the banking and industry groups.
"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 letter added.
Banks and credit unions contend they will need to hire extra staff to help customers and their tax professionals understand the reports and how the IRS might use them.
Might banks lose customers? Possibly. Surveys have indicated that some "unbanked" people cite suspicions of banks or the government as reasons they do without checking or savings accounts.