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What’s in the Treasury’s proposal to track almost all bank accounts


As part of President Joe Biden’s plan to crack down on tax evasion by the wealthy, one proposal has proven to be inflammatory: a plan to force banks to report several new information from U.S. bank accounts to the Internal Revenue Service. It has drawn condemnation from the financial industry and some lawmakers, while stoking fears among ordinary Americans that the government is considering monitoring their daily spending.

Under a Treasury proposal released in May as part of the agency’s budget request, banks would be required to keep track of how much money went in and out of an account, excluding any account. with less than $ 600 in annual flows or with a balance of less than $ 600. Individual transactions will not be listed and officials have said this will not lead to more audits on middle-income Americans.

Despite this, the proposal is still the subject of heated negotiations in Congress. Here’s what’s included in the plan – and what’s not.

Totals, not transactions

The Treasury proposal would require banks to report “gross inflows and outflows with a breakdown of physical cash, transactions with a foreign account, and transfers to and from another account with the same owner.” Banks already report interest income greater than $ 10 on Form 1099-INT; this proposal would add a few lines to this tax document.

Treasury officials have said fears of increased audits are unfounded, and the administration has pledged not to increase audits on people earning less than $ 400,000 a year, but to focus enforcement. “on high incomes who do not fully declare their tax obligations”.

Officials point out that the IRS would not learn individual spending patterns – only total money coming in or going out.

“The proposal does not involve any reporting of an individual’s individual transactions,” Treasury Secretary Janet Yellen told CBS Evening News’ Norah O’Donnell. “If someone reports income of $ 10,000 and has $ 3 million [dollars] take out of their checking account, that tells the IRS that this is someone you could audit. “

A low threshold

The Treasury’s choice of a reporting level of $ 600 caused a pullback, with some Democrats in Congress proposing $ 10,000 as a threshold.

But that low initial figure – coming after a new requirement, which took effect last year, for online sellers to report more than $ 600 in income to the IRS – has created the impression in some quarters that the government is seeking to get middle income taxpayers for innocent mistakes.

The American Bankers Association, along with a number of financial industry groups, say small business owners and independent entrepreneurs would bear the brunt of the proposal, not the rich. “While the stated goal of this vast data collection is to uncover tax evasion by the wealthy, this proposal does not remotely target that goal or that population,” the groups wrote last month.


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Taxpayers can be excused for thinking this. As the IRS’s enforcement capacity dwindled with its shrinking budget, it increasingly relied on automated enforcement tools that grab low-income taxpayers, so Americans the least. well paid are audited at higher rates than the richest. Combined with decades of IRS staff shortages, many fear that providing the agency with more information will allow it to make more mistakes.

“You have an IRS that doesn’t answer a lot of its calls, if not most of its calls. You have an IRS that can’t even process paper returns, you have an IRS that can’t handle the questions people have, “said Martin Davidoff, partner in charge of the tax controversy practice at the accounting firm. Prager Metis.

“Now they’re going to automate the app for tens of millions of people, and they won’t have the staff to address people’s concerns,” he said, paraphrasing the public perception of the Treasury proposal. .

Another element of the White House’s plan is to increase the IRS’s budget by $ 80 billion, which allows it to hire more staff to answer taxpayer questions and enforce the law.

It’s already the law

Supporters of the proposal note that it actually requires no new taxes – it simply allows the IRS to enforce existing law.

“We are all supposed to pay taxes on our income,” said Steve Wamhoff, director of federal tax policy at the Institute for Taxation and Economic Policy. “This idea that you kind of have a right not to tell the IRS about your income – that right doesn’t exist. It doesn’t.”

He added: “We are literally talking about enforcing the law that is already in place.”

The proposal is part of a series of laws that would fill the so-called information gap – taxes the government is unable to collect due to unreported income. Much of these unpaid taxes belong to the richest 1% of taxpayers – according to one estimate, $ 160 billion a year goes unpaid by this group.


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This gap exists in part because, unlike low- and middle-income workers whose income from employment, concert work, and savings accounts is reported annually on Forms W-2 and 1099, wealthy individuals know they often have no one looking over their shoulder. . The Treasury estimates that only around 50% of business income is reported, unlike employment income, where compliance is near perfect.

“If you earn a salary, the IRS can see exactly what you earn and enter your salary,” said Megan Brackney, partner at Kostelanetz & Fink. “For people with higher incomes, the IRS doesn’t have exact information on what they earn, and it is more difficult to collect the taxes they owe.”

“Middle class and low income taxpayers really suffer when there is no tax compliance, especially among the wealthy. I think anyone of any political lean would want the rich to pay their fair share, not the ability to evade taxes. ”

Privacy at stake

While the ultra-rich have a range of tools at their disposal to avoid taxation – including trusts, limited liability companies, and partnerships that can hide payments – most of them interact with the system. banking.

Said Martin Davidoff, “I have people with entire businesses that they don’t report at all, and they just put it in their personal bank account.”

This is another argument in favor of a relatively low reporting threshold, say some tax experts. It is not uncommon for many people to have more than one bank account, and a high reporting threshold could make it easier to hide the money.

Still, Republicans and some Democrats are pushing back the proposal. Senate Minority Leader Mitch McConnell called it ‘another massive slash’, while Nebraska state treasurer said he would not comply with the requirement if it became law .

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