Banks Should Provide Data to IRS on Accounts With Over $ 600 Under Proposal to Catch Tax Cheats
As Congress negotiates the details of the reconciliation bill, a big question is how to pay for all the new spending.
A proposal would give the IRS a better chance to track down tax evasion.
This would require banks to report to the IRS all accounts with a balance of $ 600 or more or that have $ 600 or more in transactions. The IRS would then be able to compare the bank account information with the information on the tax returns to see if there may be any unreported income. Banks wouldn’t report details of individual transactions – like if you went to Wawa or the liquor store, booked a massage or vacation in Aruba – but instead reported the total amounts entering and leaving the accounts.
The Biden administration said the information would help the IRS find unreported income from wealthy individuals and businesses and help close a tax gap of more than $ 160 billion – in taxes owed on income that doesn’t have never been paid.
Indeed, over the past decade, the IRS has checked fewer and fewer tax returns.
In 2010, the agency audited 1.11% of returns. By 2019, that number had fallen to 0.45%.
Treasury Secretary Janet Yellen told a Senate committee the proposal would add two more pieces of information to 1099-INT, a form banks already file with the IRS.
“I think it’s important to recognize that we have an estimated tax gap of $ 7 trillion over the next decade,” she said. “It is taxes that are owed and not paid to government that rob us of the resources we need to make essential investments to make America more productive and competitive.”
But critics say the move would be an invasion of privacy and too onerous.
The American Bankers Association (ABA), in a letter to leaders in Congress, said the move would require financial institutions “to develop the technology and processes necessary to identify accounts, report to the IRS and customers, and educate customers and bank staff on what the information means (and doesn’t mean) ”.
He also said that while the proposal is intended to tackle high dollar tax cheats, it would impact the little guy as well.
For example, he cited independent contractors who typically buy materials for construction work, saying they will typically have gross inputs and outputs that exceed their actual income. The additional reports could result in innocent people being watched, he said.
“Ultimately, whether they are average workers or independent citizens, virtually all Americans will be subject to this new alert,” the ABA said. “The taxable portions of this activity are already generally captured by existing reports, and it’s unclear how these additional details will help the IRS target tax evasion in the top 1% of reporters.”
Rep. Jeff Van Drew, R-2nd Dist., Introduced a bill last week that would block the proposal if it becomes law, calling it “government overtaking.”
“This unnecessary administration proposal is an invasion of Americans’ privacy rights and allows the government to gain expanded access to sensitive bank information of individuals,” Van Drew said in a statement. “The vast majority of Americans are law-abiding taxpayers and we as members of Congress should treat them as such. “
Yellen disputed the privacy concerns, noting that the proposal would not flag individual transactions, and she said that would not be a burden on banks.
“Banks already report interest they pay on accounts over $ 10 directly to the IRS, and this is not a proposal to provide detailed transaction-level data by banks. to the IRS, ”she told CNBC.
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Karin Price Mueller can be contacted at [email protected].