Joint ABA-State Bankers Association Letter to Chair and Ranking Member re: Financial Institution Income Tax Reporting

The Honorable Ron Wyden
Chairman 
U.S. Senate Committee on Finance
Washington, D.C. 20510

The Honorable Mike Crapo 
Ranking Member
U.S. Senate Committee on Finance
Washington, D.C. 20510

The Honorable Richard Neal
Chairman 
U.S. House Ways and Means Committee
Washington, D.C. 20515

The Honorable Kevin Brady 
Ranking Member
U.S. House Ways and Means Committee
Washington, D.C. 20515

Dear Chairmen Wyden and Neal and Ranking Members Crapo and Brady:

On behalf of the members of the American Bankers Association (ABA) and the undersigned State Bankers Associations, representing banks of all sizes in every state, we write to express concerns about a proposal included in the Administration’s American Families Plan that would create new tax information reporting requirements for financial institutions. We urge members to oppose any efforts to advance this significant new reporting regime for a number of reasons we detail below.

Our members fully support adequate funding and resources to promote compliance with our Nation’s tax laws. That said, we request that new financial institution tax reporting requirements be excluded from spending proposals for the reasons described below. The requirements are far more expansive and vastly more complicated than the few sentences of description suggest, would generate a new trove of data that the Internal Revenue Service (IRS) is unlikely to be able to use or protect, and would intrude into the lives of nearly every American.

Although limited information is available, we understand this proposal would require financial institutions and other providers of financial services to track and submit to the IRS information on every account above a de minimis threshold of $600 of inflows and outflows during the year. This proposal would create a dragnet, collecting the financial information of most Americans and requiring significant resources to build, police, and maintain. Policymakers must consider how account-holder data would be protected and whether a program of this scale and scope infringes on the American people’s reasonable expectation of privacy. As noted in the Administration’s Tax Compliance Agenda, the IRS experiences 1.4 billion cyberattacks annually, has had multiple data breaches, and continues to deal with the fallout of identity theft and false tax returns. Adding an entirely new set of data may compound the IRS’s systemic problem and expose even more taxpayer data.
In addition to the challenges associated with protecting this new data, policymakers should consider the potential unintended consequences of leveraging bank relationships to execute such a large-scale and detailed reporting regime. Privacy concerns are already cited as one of the top reasons that individuals choose not to open bank accounts. A reporting regime of this magnitude could exacerbate the wealth gap in this country by pushing those households on the cusp of banking services back into the unbanked and underbanked population.

Financial institutions already report a tremendous amount of data to the IRS and it is unlikely that the reported information would materially improve the IRS’s ability to identify tax evaders or to deter evasion over and above the tools already at the IRS’s disposal. The existing reporting regime captures the majority of taxable events of the high-income taxpayers that the Administration believes it is targeting, including sales and distributions, and earnings from investments, including brokerage, retirement, trust, S Corporation, and partnership (including offshore) accounts. We urge policymakers to ensure that the existing framework of information collection and oversight is fully utilized before adopting new requirements.

Despite assertions that this proposed regime would be simple to execute and represent a low or even no-cost mechanism to help narrow the tax gap, designing system capabilities to capture account inflows and outflows and other information is complex, expensive, and will take years. Having the raw data somewhere in a bank system does not mean it is easily compiled or produced to government specifications. For example, financial institutions would need to adjust their many customer systems to calculate gross inflows and outflows, account for de minimis protocols, navigate complications associated with joint account ownership, and identify transactions with foreign accounts, cash transactions, and transactions between accounts with the same owner.

The reporting system would need to apply across most, if not all, bank products – including many that do not currently require any IRS reporting and consequently do not have even the baseline analytical and reporting infrastructure needed to support this type of reporting. This would be a significant operational undertaking, especially for community banks that are often dependent on third-party service providers for their system updates.

Instituting a comprehensive new reporting regime would be significantly more complex than the Administration’s proposal suggests and, more importantly, the costs of instituting such a program likely outweigh the benefits. We appreciate the opportunity to convey our policy concerns on this matter and urge members to oppose any efforts to advance this proposal.

Sincerely,

American Bankers Association
Alabama Bankers Association
Alaska Bankers Association
Arizona Bankers Association
Arkansas Bankers Association
California Bankers Association
Colorado Bankers Association
Connecticut Bankers Association
Delaware Bankers Association
Florida Bankers Association
Georgia Bankers Association
Hawaii Bankers Association
Idaho Bankers Association
Illinois Bankers Association
Indiana Bankers Association
Iowa Bankers Association
Kansas Bankers Association
Kentucky Bankers Association
Louisiana Bankers Association
Maine Bankers Association
Maryland Bankers Association
Massachusetts Bankers Association
Michigan Bankers Association
Minnesota Bankers Association
Mississippi Bankers Association
Missouri Bankers Association
Montana Bankers Association
Nebraska Bankers Association
Nevada Bankers Association
New Hampshire Bankers Association
New Jersey Bankers Association
New Mexico Bankers Association
New York Bankers Association
North Carolina Bankers Association
North Dakota Bankers Association
Ohio Bankers League
Oklahoma Bankers Association
Oregon Bankers Association
Pennsylvania Bankers Association
Puerto Rico Bankers Association
Rhode Island Bankers Association
South Carolina Bankers Association
South Dakota Bankers Association
Tennessee Bankers Association
Texas Bankers Association
Utah Bankers Association
Vermont Bankers Association
Virginia Bankers Association
Washington Bankers Association
West Virginia Bankers Association
Wisconsin Bankers Association
Wyoming Bankers Association