The Biden Administration is continuing to push for a sweeping new tax reporting regime that, if enacted, would require financial institutions to report to the IRS gross annual inflows and outflows from millions of consumer and business bank accounts.
Many members of Congress have heard from their constituents back home and have fought to keep this proposal out of the American Families Plan, and we urge them to keep it out.
ABA firmly believes everyone should honor their tax obligations and reducing the tax gap is a laudable goal, but this proposal does not actually target those suspected of cheating on their taxes. Instead, it creates a dragnet of data collection for millions of small businesses and individuals, and unlike the interest income information that banks currently report, most of this data will not capture taxable income.
These new reporting requirements raise serious questions about Americans’ right to privacy and will raise the cost of tax preparation for individuals and small businesses.
Collecting information from millions of accounts across the U.S. also creates data security concerns. The IRS has not explained how it will store, protect and use this massive amount of personal financial information. The IRS concedes it cannot even process all of the reams of information it currently receives.
ABA believes we need to continue to fight to keep this overly broad IRS reporting proposal out of the American Families Plan. Millions of bank customers and everyday Americans share our view that this reporting regime goes too far and that a more targeted approach is necessary.
If enacted, banks of all sizes will have to spend significant resources to capture and report this information to the IRS and customers. Those resources would be much better spent investing in the new banking technologies bank customers want and need.
The biggest cost to banks, however, would be the damage done to the bank-customer relationship. Banks are trusted to safeguard customers’ money and information, and they take that responsibility seriously. This proposal threatens that trust by forcing banks to share account information with the IRS, which has repeatedly failed to protect the personal information of individual taxpayers in recent years.
This proposal could also set back efforts to reduce the number of unbanked in the country — and possibly even increase it. Some Americans are skeptical about opening a bank account and are not currently taking advantage of all the benefits access to banking can bring. This proposal could make them even more reluctant to open an account, and potentially cause others to exit the banking system to maintain their privacy.