President Joe Biden’s $3.5 trillion American Families Plan is getting pushback from local banks, businesses and taxpayers who don’t want the Internal Revenue Service poking around in their bank accounts.
“No one wants their bank to turn over their bank account information to the IRS,” said Paul Merski, group executive vice president for the Independent Community Bankers of America, which represents independent banks in Delaware such as Community Bank. “The proposal would mandate that all banks report to the IRS any transaction flows of $600 or more.”
Merski said it’s measuring flows, anything coming in and out of a checking account, savings account or even a loan account.
“People typically have mortgage flows of more than $10,000 a year,” he said. “It’s really a dragnet blanket reporting on people’s financial transaction flows. It’s a massive invasion of bank customers’ privacy.”
Merski said his group has been sounding the alarm so customers know this is pending. The American Families Plan Tax Compliance Agenda is currently in committee on Capitol Hill, Merski said, and there is concern that the new bank rules could be slipped into a bill at the last minute. “We’ve been fighting to keep it out,” he said.
So has the Rehoboth Beach-Dewey Beach Chamber of Commerce.
In a letter sent to Delaware’s congressional delegation Sept. 29, the chamber made clear its opposition to a proposal that would make banks and financial institutions send deposit and withdrawal information to the Internal Revenue Service.
“The U.S. Congress is currently considering enacting this new bank IRS reporting plan, and we strongly oppose this proposal because it would be intrusive and harmful to the individual and small business in our community,” wrote Carol Everhart, chamber president and CEO.
Everhart said she has not yet heard back from Sen. Chris Coons, Sen. Tom Carper, or Rep. Lisa Blunt Rochester.
“Comments from the general public have been to express – what I would call – questioning why, as well as, ‘that’s my information,’” she said.
The proposal to give the IRS personal and business bank account information is part of a plan to invest $80 billion over the next decade so the IRS can fight tax evasion, as outlined in the American Families Plan Tax Compliance Agenda.
The 24-page document details improvements needed to modernize the IRS, such as updating technology that dates back to the 1960s, and implementing new functions cohesively as opposed to the patchwork system it has been utilizing.
On page 20, the plan states, “[The] proposal requires information reporting on financial accounts to increase the visibility of gross receipts and expenses to the IRS.”
The plan states that financial institutions would add information about total account outflows and inflows to its existing reporting on bank accounts; some publications such as the Wall Street Journal have reported payment services such as Venmo could be included.
Specifically, the plan states that banks would add two lines onto the 1099-INT forms it must fill out for taxpayers who get more than $10 a year in interest. Under the plan, the annual return would report gross inflows and outflows on all business and personal accounts from financial institutions, including bank, loan and investment accounts, but carve out exceptions for accounts below “a low de minimis gross flow threshold.”
In other words, the proposal preserves significant flexibility for the treasury secretary and the IRS to design the new reporting requirements in the way that will be most effective for tax compliance efforts, according to a footnote in the plan.
The Treasury Department said in an April statement that the new plan is needed to improve audit systems and avoid unnecessary audits of ordinary taxpayers. In its introduction, the president’s plan states there would be no added requirements for taxpayers.
“The IRS will be able to deploy this new information to better target enforcement activities, increasing scrutiny of wealthy evaders and decreasing the likelihood that fully compliant taxpayers will be subject to costly audits,” the plan states.
Still, banks across the country are balking at the plan.
In a letter sent to congressional leaders Sept. 24, the American Bankers Association, of which the Delaware Bankers Association is a member, said even if minimum reporting requirements were raised to $100,000, it would still penalize low- to mid-income earners, and not the wealthy population that the plan purports to target.
“Consider a taxpayer who earns $18 an hour, has no other income, and pays rent and other living expenses – the sum of gross inflows and outflows after taxes would be around $60,000. Self-employed contractors who buy materials and install them for customers will commonly have gross inflows and outflows that far exceed the income they earn. These are simple examples of what likely would be significant amounts of information generated by this new regime and reported to the IRS regarding the accounts of average Americans,” the letter states. “In the end, whether it is average workers or self-employed citizens, virtually all Americans will be subject to this new reporting. The taxable portions of this activity are already generally captured by existing reporting, and it is unclear how these additional details will help the IRS target tax cheats in the top 1 percent of reporters.”
Banks already have the power to report suspicious activity to the IRS. The Bank Secrecy Act of 1970 requires banks to report transactions over $10,000 – an amount that should be about $70,000 to account for inflation, Merski said.
Banks also have the power to file suspicious activity reports no matter the dollar amount. Merksi said a suspicious activity report was filed against 9/11 bomber Mohamed Atta, yet nothing was done with the information.
“There’s a concern that the IRS is going to get billions more pieces of information when they are looking for a few tax evaders,” he said. “The premise is all wrong. It’s assuming everyone is a tax cheat, so we have to force the banks to give us your data and monitor everyone’s financial transactions. It’s really a massive invasion of privacy that has never been seen in this country.”