Administration Scaling Back Plan to Deepen IRS Scrutiny Into Bank Accounts
WASHINGTON – The Biden administration is reversing course on a proposal that would have required banks to flag private accounts to the Internal Revenue Service when an individual deposit or withdrawal exceeded $600.
A revised plan, expected to be announced by Senate Finance Chair Ron Wyden, D-Ore., Tuesday afternoon, would raise the required amount to report to $10,000 and include an exemption for large purchases like a down payment for a house.
The new proposal hues closer to a proposal put forward by House Ways and Means Chair Richard Neal, D-Mass, last month, after some Democrats and swarms of Republicans expressed their discomfort to the original proposal, which the administration said was intended to catch tax cheats.
Just hours before Wyden spoke, several GOP Senators assailed the original plan during a lunch hour news conference.
Sen. Mike Crapo, R-Idaho, ranking member of the Senate Finance Committee, said the administration’s proposal would give the IRS the authority to look into the financial transactions of Americans on a “scale broader than we’ve ever seen in this country — and totally unnecessarily.”
He went on to say that when one considered the typical household expenditures of an average American family over the course of a year, almost no one would be immune to IRS scrutiny.
“And the reporting requirement doesn’t just apply to banks, it includes all kinds of financial institutions, PayPal, you name it … and the scope of the IRS’s ability to dive into these accounts will be the biggest violation of individual privacy ever.”
Sen. Pat Toomey, R-Pa., the ranking member of the Senate Banking Committee called the original proposal “a breathtakingly terrible idea.”
“We’re going to have all kinds of private information about American citizens in the hands of the same IRS that famously discriminated against conservative organizations seeking a tax exempt status … and the very same agency that very recently leaked massive amounts of completely private personal tax information to ProPublica.
“Now, we’re going to give them the transaction information of almost every single American,” he said.
“And you have to ask yourself to what purpose? Reporting these transactions will tell you nothing about taxable income. But what will happen is Americans will lose their privacy.”
“This is a terrible idea and it should never see the light of day,” Toomey concluded.
The administration’s change of direction was announced initially by Treasury Secretary Janet Yellen, who said in a statement “Today’s new proposal reflects the Administration’s strong belief that we should zero in on those at the top of the income scale who don’t pay the taxes they owe, while protecting American workers by setting the bank account threshold at $10,000 and providing an exemption for wage earners like teachers and firefighters.”
“We will continue to work with leaders in Congress to enact this important measure to level the playing field for workers and small businesses, and raise revenue to build our economy back better,” she said.
Yellen also tried to explain the administration’s position and how it grew out of a need to close what she called “the tax gap.”
“Under the current system, American workers pay virtually all their tax bills while many top earners avoid paying billions in the taxes they owe by exploiting the system,” Yellen said.
“At the core of the problem is a discrepancy in the ways types of income are reported to the IRS: opaque income sources frequently avoid scrutiny while wages and federal benefits are typically subject to nearly full compliance. This two-tiered tax system is unfair and deprives the country of resources to fund core priorities.”
Democrats hope the new threshold will calm dissent in the banking industry, since banks are already required to report any transaction that exceeds $10,000 to the Financial Crimes Enforcement Network, that threshold having been established to thwart money laundering.
Last month, more than 40 banks sent a letter to House Speaker Nancy Pelosi, D-Calif., and Minority Leader Kevin McCarthy, R-Calif., urging them to reject the proposal on the grounds that it would increase costs for banks that would need to be passed on to consumers and create a “tremendous liability” for all involved in collecting the information.
And on Tuesday, Rob Nichols, president and CEO of the American Bankers Association issued a statement that suggested he and his members are not happy with the new proposal either.
“Today marks another attempt by the administration and congressional leaders to explain to the American people why the government needs more information on them,” Nichols said. “Even with the modifications announced today, this proposal still goes too far by forcing financial institutions to share with the IRS private financial data from millions of customers not suspected of cheating on their taxes.”
“If enacted, this new proposal would still raise the same privacy concerns, increase tax preparation costs for individuals and small businesses, and create significant operational challenges, particularly for community banks,” he said, adding, “We firmly believe that everyone should honor their tax obligations, but this blunt instrument is not the right tool to solve this problem.”