Lazaro Aleman
ECB Publishing, Inc.
The financial services sector is raising the alarm about a proposal that Congress is expected to begin considering soon that would require banks and other financial institutions to report information on account flows to the Internal Revenue Services (IRS).
The provision proposing the new tax reporting requirements by banks is contained in the Biden Administration’s $3.5 trillion budget proposal for 2022.
While acknowledging the IRS’s obligation to ensure compliance with tax laws, banking groups say the proposal raises serious data privacy and data security concerns. Additionally, these groups say, the requirement imposes new costs on small businesses and the financial institutions that serve them.
“This proposal implicates customer privacy and data security on a massive scale, would increase compliance costs to individuals and small businesses, will work against important efforts to bring more Americans into the banking system, and has the potential to damage customer relationships for banks of all sizes across America,” the American Bankers Association (ABA) said.
The proposal would specifically require banks, credit unions and other financial institutions to report on all customers with gross annual inflows and outflows above a minimum level of $600, the idea being to crack down on tax cheating.
The U.S. Treasury reportedly holds that the proposed reporting requirements will not impose any additional burden on taxpayers. The ABA, however, counters that the proposal will likely increase the costs of tax preparations, especially for small businesses that operate as sole proprietorships. It could also, the organization says, undermine public trust in banks and hinder progress toward promoting financial inclusion.
The association is urging bankers to contact their representatives and express opposition to the proposal.
Banks currently are required to report deposits in excess of $10,000. The proposal, if approved, would require that all financial institutions report the deposits and withdrawals of all business and personal accounts with a balance of more than $600 annually.
Among the banking groups’ several objections, they say the requirements would infringe on the privacy of bank customers, push many people in minority and marginalized communities away from banking, and overload the IRS with more personal information about American citizens.
Driving the budget proposal is a purported “tax gap” of $500 to $600 billions between what the government is owed and what the IRS is collecting. The banking groups, however, hold that merely collecting more data will not solve the problem.