In April 2021, President Biden’s American Families Plan contained a proposal under which banks would report deposits and withdrawals for all business and personal accounts to the IRS except for accounts below a threshold of $600 or a fair market value of $600. Democrats believe that it would help the IRS target tax evaders if they could track money flowing in and out of accounts. Since the administration has pulled back on this proposal by increasing the threshold from $600 to $10,000.
The proposal was intended to go into effect on December 31, 2022, and read as follows:
This proposal would create a comprehensive financial account information reporting regime. Financial institutions would report data on financial accounts in an information return. The annual return will report gross inflows and outflows with a breakdown for physical cash, transactions with a foreign account, and transfers to and from another account with the same owner. This requirement would apply to all business and personal accounts from financial institutions, including bank, loan, and investment accounts, with the exception of accounts below a low de minimis gross flow threshold of $600 or fair market value of $600.
Republican attorneys general in more than a dozen states have written the Biden Administration saying the plan is “unacceptable, illegal, and contrary to the well-founded constitutional principles against illegal searches and seizures.” Many financial institutions and conservative groups have also taken issue with the proposal. FNB Community Bank made the following statement:
“The Biden administration has proposed requiring all community banks and other financial institutions to report to the IRS on all deposits and withdrawals through business and personal accounts worth more than $600 regardless of tax liability. This indiscriminate, comprehensive bank account reporting to the [Internal Revenue Service (IRS)] can soon be enacted in Congress and will create an unacceptable invasion of privacy for our customers.”
Just past the middle of October, Senate Democrats unveil a scaled-back version of the proposal aimed at tax cheats among the wealthy. After the backlash caused by the initial proposal, the new version will require the provision of additional information for accounts with more than $10,000 in annual deposits or withdrawals
This revised version of the proposal will also exempt all wage income from counting toward the $10,000 threshold withdrawal, to help ensure that it only applies to those with larger accounts. The weakening of the reporting requirements came as a reaction to Republicans, conservative groups, and industry lobbyists objecting to the initial proposal as a significant unwanted expansion of the ability of the IRS to access taxpayers’ private information. Treasury Secretary Janet L. Yellen defended the proposal by saying that the new reporting rules are simple technical modifications of the law that only affect the wealthy who try to evade paying their taxes. Just the same, many Democrats privately acknowledge that the proposal gave Republicans an opening to attack them and provoke other conservative groups.
Banks currently already report the interest earned in customers’ accounts to the IRS. Also, stockbrokers report the dividends and capital gains of their customers to the IRS. The proposal would require banks to also report total deposits and withdrawals to the IRS. The totals would be reported once a year rather than every time a transaction above a certain threshold has occurred.
If you live in the New York or the Tri-State area and have any questions about any tax-related issues, call THE TAX EXPERTS at the Thorgood Law Firm for a FREE consultation, call 212-490-0704. Learn more online at www.thorgoodlaw.com.
