The US Treasury is revising a plan to track more Americans’ bank accounts in order to limit tax evasion by the wealthy, following strong opposition from the finance industry and conservative politicians.
Banks would report to the Internal Revenue Service several new pieces of information from U.S. bank accounts under the proposal, which was first proposed in May: the total amount of money flowing in and out of an account, with breakdowns for foreign transactions and transfers to the same account holder.
After initially proposing to track bank accounts with more than $600 in or outflows, the Treasury offered a new threshold on Tuesday. An account with more than $10,000 in transfers in a given year will be flagged for reporting to the IRS, according to a press release from the agency. Wage and salary deposits will not be counted toward the threshold, according to the Treasury.
The Treasury also suggested that banks round their reported figures to the nearest $1,000 rather than reporting exact figures.
The initial proposal was met with harsh criticism from the financial industry. The American Bankers Association has stated that the reporting requirements would collect far too much information from far too many Americans, and it has vowed to oppose any effort to force banks to disclose more information, regardless of the dollar threshold.
The Biden administration has countered that tax evasion results in large sums of money going uncollected and that a broader base of information is required to identify taxpayers whose income is not reported in other ways, such as W2s. It has promised not to raise audit fees for families earning less than $400,000.
Banks already report interest income over $10 on Form 1099-INT; supporters argue that this proposal would add a few lines to that tax document. The Treasury emphasizes that no individual spending data will be visible — only total money coming in or going out.
Supporters of the proposal point out that it does not necessitate the imposition of new taxes; rather, it allows the IRS to enforce existing legislation. The proposal is part of a package of laws aimed at closing the so-called information gap, which refers to taxes that the government is unable to collect due to unreported income.
That gap exists in part because, unlike low- and middle-income workers, whose income from employment, gig work, and savings accounts is reported annually in W-2s and Form 1099s, wealthy people are aware that they frequently do not have anyone looking over their shoulders. In contrast to employment income, which has near-perfect compliance, the Treasury estimates that only about half of business income is reported.
The $600 threshold was the source of some of the initial outrage over the Treasury proposal. Following a new requirement for online sellers to report more than $600 of income to the IRS that went into effect last year, the low figure created the impression in some quarters that the government is out to get middle-income taxpayers for inadvertent mistakes.
It’s understandable for taxpayers to believe the IRS isn’t on their side. As the agency’s enforcement capacity has dwindled as its budget has shrunk, it has relied more and more on automated enforcement tools that catch lower-income taxpayers, resulting in audits of lower-income Americans being performed at a higher rate than audits of the richest.
When combined with the IRS’s decades-long staffing shortages, some fear that providing more information to the agency will only allow it to make more mistakes.
Another component of the White House plan is an increase in the IRS budget of $80 billion, which will allow it to hire more staff to answer taxpayer questions and enforce the law.
While the ultra-wealthy have a plethora of tax-avoidance tools at their disposal, such as trusts, limited liability corporations, and partnerships that can conceal payouts, the vast majority of them do interact with the banking system.
According to some tax professionals, this is another argument in favor of a relatively low reporting threshold. It’s not uncommon for many people to have more than one bank account, and a high threshold for reporting could make it easier to leave money out of sight.
