Tax law and federal budgets are inherently boring things, so it comes as no surprise that language is often slipped into those bills that would otherwise cause outrage if proposed individually.  Like giving the IRS access to your personal and business bank account.

The Biden Administration’s 2022 budget proposal — which claims to advance “equity across government” — included a provision that generally slipped under the radar, but would impose onerous new reporting requirements on community banks and raises privacy questions.

The Independent Community Bankers Association reports that the proposal would require financial institutions to report information on customer bank accounts to the IRS.

Currently, banks are only required to report deposits of $10,000 or more, however, the proposal would require banks and other financial institutions to report to the IRS on the deposits and withdrawals of all business and personal accounts with a balance of more than $600. 

The Kansas Bankers Association objected strongly to the proposed requirement and said flatly that they stand in opposition.

“The new reporting requirements would raise questions about customers’ right to privacy, create unnecessary and expensive burdens for banks and raise the cost of tax preparation for small businesses,”  President & CEO Doug Wareham said in a statement. “While all banks would be affected, small community banks with limited internal resources will be especially burdened by this new requirement. The new requirements will require a massive and expensive compliance effort to track and report inflows and outflows on all bank products.”

ICBA — and 44 other community bank associations — have more or less gone to war over this issue sending out a  fact sheet and hearing statement, a Minority Bank Advisory Council letter to congressional leaders, a joint letter with 44 state community banking associations, and thousands of grassroots messages from community banks. 

Among the issues raised, ICBA says mandating new, broad bank account reporting to the IRS would infringe on the privacy of bank customers, push more people away from a banking relationship and overload the IRS with more personal information about American citizens than it can possibly process or keep safe from a data hack.

ICBA also noted the requirements would likely push minority communities and poorer customers away from the banking system.

“The unbanked often fall prey to non-bank lenders and check cashers, incurring exorbitant interest rates and fees,” their fact sheet reads. “They jeopardize their personal security by carrying cash. In many American communities, there is a high level of distrust of government in general and the IRS in particular. 

“These include certain marginalized communities as well as those recently arrived from authoritarian regimes that spy on their citizens. 

“This distrust is a primary reason why too many Americans opt-out of the banking system. Indiscriminate sharing of financial account data with the IRS will only increase the challenge of reducing the unbanked population and will likely drive many of those currently in the banking system to leave.”

Moreover, the proposal would force banks to issue 1099 forms for every bank account a customer has, which would have to be filed with taxes, regardless of whether or not it has any bearing on actual income.

The ostensible reason for the proposal is to close the so-called “tax gap” wherein the government claims it is collecting around $500 to $600 billion less in taxes than is actually owed. 

However, ICBA notes that adding more data to the equation won’t actually fix anything.

“The IRS already collects more data than it can process, including data reported under the Foreign Accounts Tax Compliance Act (FATCA),” their datasheet reads. “The IRS should begin by making better use of this data.

The Tax Policy Center of the left-leaning Brookings Institution agrees.

“Biden’s plan requires too many reports yet reveals too little useful information.” Steven M. Rosenthal wrote in May. “… The IRS, in theory, could use this information to help construct a financial profile for the account holder, which the IRS would compare to the tax returns filed by the holder.

“In practice, the IRS’ task would be daunting and, in fact, bury the agency in a sea of unproductive information.”

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