The U.S.Treasury is amending a plan to track more Americans’ bank accounts to limit tax evasion by the wealthy after the proposal garnered severe pushback from the finance industry and conservative politicians.
Under the proposal, first introduced in May, banks would report to the Internal Revenue Service several new pieces of information from U.S.bank account: 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 of inflows or outflows, on the Treasury on Tuesday offered a new threshold .More than $10,000 in transfers in a given year would flag an account for reporting to the IRS, the agency said in a press release .Wage and salary deposits won’t count toward that threshold, the Treasury said.
Banks could also round the figures they report to the nearest $1,000, instead of reporting exact figures, the Treasury said.
The initial proposal garnered heated criticism from the finance industry.The American Bankers Association has said the reporting requirements would capture too much information from too many Americans, and has vowed to oppose any effort to get banks to disclose more information — regardless of how high the dollar threshold goes.
“If there are opaque sources of revenue, let’s focus on addressing that challenge head-on rather than over-collecting information from everyone in the hope that it shines a light on a small number of tax cheats,” ABA vice president for tax policy, John Kinsella, wrote in a recent blog post .
The Biden administration has countered that tax cheating adds up to big bucks going uncollected and it needs a broader base of information to identify taxpayers whose income isn’t reported in other ways, such as W2s, and has pledged not to increase audits on families making less than $400,000.
Here are the other details of the hotly debated legislation.
Totals, not transactions The Treasury proposal would have banks 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.”
Banks already report interest income over $10 on Form 1099-INT; this proposal would add a few lines to that tax document.
No individual spending data will be visible, the Treasury emphasizes — only total money going in or out.
“Banks will not share with the IRS any information to track individual transactions under this proposal, and the IRS will have no ability to track individual transactions,” the Treasury said in a blog post.
It’s already the law Supporters of the proposal note that it doesn’t actually require any new taxes — it merely allows the IRS to enforce the existing law.
“We are all supposed to pay income taxes on our income,” said Steve Wamhoff, director of federal tax policy at the Institute for Taxation and Economic Policy.”This idea that you have some sort of right to not tell the IRS about income you have — there is no such right.That doesn’t exist.”
He added, “We are literally talking about enforcing the law that is already on the books.”
The proposal is part of a suite of laws that would close the so-called information gap — taxes that the government doesn’t know to collect because of income that goes unreported.A vast amount of those unpaid taxes belongs to the wealthiest 1% of taxpayers — by one estimate, $160 billion a year goes unpaid by this group.
That gap exists partly because, unlike low- and middle-income workers whose income from employment, gig work and savings accounts is reported every year in W-2s and Form 1099s, wealthy people know they often don’t have anyone looking over their shoulder.The Treasury estimates that only about 50% of business income is reported, in contrast with employment income, where there’s near-perfect compliance.
“If you earn wages, the IRS can see exactly what you make, and garnish your wages,” said Megan Brackney, a partner at law firm Kostelanetz & Fink.”For higher-income people, the IRS doesn’t have exact information of what they make, and it’s harder to collect tax they owe.”
“Middle-class and low-income taxpayers really suffer when there isn’t tax compliance, particularly among high-net-worth people.
I would think that anyone of any political bent would want the wealthy to pay their fair share, not have an opportunity to evade tax.”
A senior Treasury official told CBS MoneyWatch that, for anyone who makes income through work, reporting bank account information would only confirm what the government already knows from seeing their W2 and 1099 forms.It would also, however, flag people who report little income but have hundreds of thousands of dollars flowing through their bank accounts.
As Treasury Secretary Janet Yellen told CBS Evening News’ Norah O’Donnell recently: “If somebody reports an income of $10,000 and they had 3 million [dollars] go out of their checking account, that tells the IRS that’s an individual you might audit.”
A low cutoff Some of the initial outrage at the Treasury proposal was focused on the $600 threshold.Coming after a new requirement , effective last year, for online sellers to report more than $600 of income to the IRS, that low figure created the impression in some quarters that the government is out to get middle-income taxpayers for innocent mistakes.
Taxpayers can be excused for thinking that.As the IRS’ enforcement capacity has dwindled with its shrinking budget, it has relied more and more on automated enforcement tools that catch lower-income taxpayers, with the result that the lowest-earning Americans are audited at higher rates than the richest .
Combined with the IRS’ decades of staffing shortages, some fear that providing the agency more information will only allow it to make more mistakes.
“You have an IRS that doesn’t answer a lot of its calls, if not most of its calls.
You have an IRS that can’t even process paper returns, you have an IRS that can’t deal with questions that people have,” said Martin Davidoff, partner in charge of the tax-controversy practice at accounting firm Prager Metis.
“Now they’re going to automate enforcement for tens of millions of people, and they’re not going to have the personnel to respond to people’s concerns,” he said, paraphrasing the public perception of the Treasury proposal.
Another element of the White House plan is raising the IRS budget by $80 billion, allowing it to hire more staff to both answer taxpayers’ questions and enforce the law.
Privacy at issue While the ultra-wealthy have an array of tools at their disposal to avoid taxation — including trusts, limited liability corporations and partnerships that can cloak payouts — most of them do interact with the banking system.
Said Martin Davidoff, “I have people with entire businesses they don’t report at all, and they just put it in their personal bank account.”
That’s another argument in favor of a relatively low reporting cutoff, some tax pros say.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.
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