What you should know about the new proposed IRS reporting mandates
There’s growing concern among Americans about the new proposed IRS reporting mandates that President Biden’s administration wants Congress to approve.
Under the proposal, all financial institutions, including every bank and credit union, would be required to report to the IRS annual transaction totals in and out of an account whenever a customer’s account has deposit(s) or withdrawal(s) over $10,000 in that year. The reporting requirement would include “gross inflows and outflows with a breakdown for physical cash, transactions with a foreign account, and transfers to and from another account with the same owner.”1
In other words, if you have total deposits (excluding your paycheck) or withdrawals that total more than $10,000 within a single year, your account would be required to be reported to the IRS under the proposal. For most people with a mortgage payment, surpassing the $10,000 threshold in withdrawals in a single year is almost automatic, especially when factoring in credit card and other monthly bill payments, plus all other purchases.
What is the reason for the proposal?
According to Treasury Secretary Janet Yellen, the new reporting requirement would help the IRS close the tax gap on taxes that are due but go unpaid. The proposal claims this is aimed at addressing the tax gap for business income, although the reporting requirement would be applicable to both personal and business accounts. Some experts who support the plan say it won’t necessarily close the gap on taxes but may deter taxpayers from avoiding taxes in the first place.
Reasons for concern
Invasion of privacy
The proposal seems like an invasion of privacy because it is. Which is why consumer groups are speaking out against the broad, untargeted nature of the proposal. Ed Mierzwinski of U.S. Public Interest Research Group has said: “They are collecting information about everybody and I don’t know why it is necessary to collect information about everybody.”
According to the Independent Community Bankers Association (ICBA), Steven Rosenthal of the Urban Institute and Brookings Institution’s Tax Policy Center notes that: “In 1998, Congress added Code sec. 7602(e), which prevents the use of ‘financial status or economic reality examination techniques to determine the existence of unreported income… unless the Secretary has a reasonable indication that there is a likelihood of such unreported income.’" Following that requirement, the current proposal seems like a massive overreach unless, of course, the administration believes everyone who has total deposits or withdrawals totaling $10,000 or more over the course of a year is hiding income from the IRS.
Taxes get more confusing
The ICBA correctly points out that taxpayers will likely have to receive new 1099s for every account they hold containing funds flow information that is not relevant to determining tax liability. Giving taxpayers more forms and more data to sort and evaluate will make tax compliance significantly more complex and confusing.
In essence, financial institutions become agents of the IRS
The proposal would require financial institutions to perform a police function on behalf of the IRS, a role that is, quite simply, inappropriate. This overreaching proposal would fundamentally redefine the relationship among financial institutions, their customers, and the IRS.
What can you do?
If you oppose the proposal you should contact your representative in the U.S House of Representatives as well as Pennsylvania’s U.S. senators to express your concerns and opposition.
Or use this link from the ICBA to contact your representatives in Washington, D.C.