WASHINGTON – The financial services industry is bracing for a protracted battle over a legislative proposal requiring banks and other institutions to report accounts receivable data intended to bring in more dollars to federal taxes.
The measure is seen by lawmakers as a source of revenue in the $ 3.5 trillion budget reconciliation plan proposed by the Biden administration. This could require banks to report transaction data for any account with at least $ 600 in or out per year.
Bankers and even some consumer advocates have criticized the idea, which first gained attention last spring as part of the administration’s U.S. Families Plan, as a compliance puzzle and nightmare. for customer privacy. Financial institutions say they are already reporting tons of data to the Internal Revenue Service.
But the industry’s focus on the provision has intensified in recent days, with Democratic lawmakers intent on pushing through one of President Biden’s top legislative priorities.
“From a banking perspective, the administrative challenges and complexities of having an annual threshold of $ 600 may not meet the policy goals of reducing tax evasion,” said Scott Talbott, senior vice president of government relations at the Electronic Transactions Association.
“At $ 600, the squeeze might not be worth the juice,” Talbott added.
The budget plan would enact a host of social policy goals to accompany an imminent overhaul of separate infrastructure. In search of revenue, the Biden administration argued that a more robust reporting regime would narrow the so-called tax gap and help the IRS identify the billions owed to the government by wealthy taxpayers who go unpaid.
The proposed IRS reporting regime, which would expand previously reported tax databases on their clients, was included in a list of potential revenue sources in a draft circulating to Capitol Hill that was obtained by American Banker . The House Ways and Means Committee may consider the tax return proposal shortly, sources say.
Still, the document also suggested that lawmakers could be flexible about adjusting the $ 600 threshold for reporting.
While budget reconciliation is one of the few legislative vehicles that can pass Congress by simple majority without the prospect of Senate obstruction, industry officials say they still have a chance to stop the process. IRS reporting measure.
“We certainly don’t see anything as a matter of reconciliation, ”said James Ballentine, executive vice president of congressional relations and political affairs at the American Bankers Association. “There is a long way to go in this process.
On Tuesday morning, the Independent Community Bankers of America released the results of a survey conducted with Morning Consult which found that 67% of those surveyed were opposed to “a proposal that would allow the IRS to collect information on deposits and withdrawals from US consumer bank accounts, ”according to a statement from the trade group.
“A bipartisan majority of Americans clearly oppose Washington’s plan for the IRS to monitor their bank account information, which Congress is now moving swiftly through a budget reconciliation package that only requires a simple majority to be adopted, ”said ICBA President and CEO Rebeca Romero Rainey. a statement accompanying the results of the investigation.
Later that same day, ABA President and CEO Rob Nichols sent a letter addressed to the heads of the House Ways and Means Committee and the Senate Finance Committee “to reiterate our strong opposition to a proposal for banks to report new information about their customers to the IRS. accounts.”
“ABA and its members strongly believe that Americans must honor their tax obligations, but it is far from clear that requiring banks to report on every customer financial account with gross inflows and outflows greater than 600 $ – creating a mountain of new data – will lead to better tax compliance, ”Nichols wrote in the September 7 letter.
Nichols even suggested that the requirement could undermine recent efforts by banks to expand financial access to underserved populations across the United States.
“Our member banks and our policymakers share the common goal of reducing the number of unbanked Americans,” Nichols said. “While some do interpret this disclosure proposal to require banks to control and report customer accounts, we are very concerned that it will undermine confidence in the banking system and erode the progress we have made in reducing the number of unbanked and underbanked people in the country. “
On the ICBA website, the trade group posted a “consumer alert” raising concerns about customer privacy issues arising from the proposal. The alert urged consumers to contact members of Congress and featured a video clip of Rainey.
“Imposing new extended bank reports to the IRS on all business and personal bank accounts would violate the privacy of bank customers,” Rainey said on video. “It would also keep more people out of a banking relationship and overload the IRS with more data than it can process or keep safe.
Combating tax evasion remains a high priority for the Treasury Department. A report released Tuesday by the Treasury estimated that the richest 1% made up 28% of the country’s unpaid tax bill each year, for a total of around $ 160 billion.
The report underscored the need for the IRS to be properly funded and staffed in order to improve tax collection. But he also pointed to a wider lack of reporting data that further hinders the agency’s efforts.
To further ensure that everyone pays their fair share, the administration is also calling for using the information that financial institutions already have – without imposing any burden on taxpayers – so that the IRS can deploy these additional resources to audit more tax evaders. sophisticated, “according to the report, which was authored by Deputy Under Secretary for Economic Policy Natasha Sarin. “These changes to third party information reporting are expected to generate $ 460 billion over a decade.”
In Congress, potential IRS reporting requirements last emerged during negotiations for the $ 1,000 billion bipartisan infrastructure package that was passed by the Senate in August and is currently awaiting a vote in the House. Bedroom.
Senate Republicans removed the IRS reporting measure for banks along with other provisions that would have strengthened the IRS’s enforcement power.
An encouraging sign for the banks is that it’s still unclear how big the budget reconciliation bill will be, especially if more moderate Democratic senators demand a lower number. A smaller package would require fewer sources of income. Earlier in August, Conservative Democratic Senator Joe Manchin argued in the Wall Street Journal that $ 3.5 trillion was just too big.
But Talbott says expanding reporting to reduce tax evasion by the wealthy could have political appeal.
“There is clearly an ongoing political movement towards the declaration,” said Talbott. “We’ve seen a number of instances where providing information to the IRS has been politically popular, so the odds of it coming off as a ‘paying off’ – it’s high. “
If the IRS’s reporting measure progresses into the latter stages of negotiations, the industry should push lawmakers to significantly raise the reporting threshold beyond the current level of $ 600.
“When you talk about accounts of $ 600 or more, you’re talking about millions and millions of regular US taxpayer and small business accounts,” Ballentine said. “It’s almost like they’re trying to make a haystack to find the needle.”