What you need to know about Biden’s plan to track $ 600 bank accounts

President Joe Biden’s $ 3.5 trillion budget reconciliation plan includes a wishlist spanning everything from medicare and childcare to electric vehicles. One of the more controversial proposals that could be included would give the Internal Revenue Service more control over bank accounts.

The proposal would require banks, credit unions and other financial companies to monitor deposits and withdrawals in accounts with balances greater than $ 600 at any time during the year. This would include the vast majority of personal and small business accounts.

Critics say it would burden financial institutions with new requirements and expose consumers and businesses to privacy invasions and possible data breaches. Proponents argue that bank customers would face no new obligations while giving the IRS more information to prosecute tax evasion, mainly among the wealthy. They hope to close a tax gap estimated at around $ 600 billion a year.

Here are the answers to a few questions about the $ 600 Account Tracking Plan.

What is the basic proposition?

The idea is to require banks, credit unions and other financial service providers to track and submit information to the IRS on the total inflows and outflows of each account with a balance greater than $ 600. at any time of the year or with at least as much in annual transactions.

Reports submitted by banks to the IRS would break down the numbers to include physical cash transactions per account, all transactions with a foreign account, and transactions between accounts held by the same owner. The IRS would not receive details of individual transactions, but rather the gross annual totals.

The $ 600 figure is not set in stone. Some media reports have indicated that it could be raised to, say, $ 10,000 – the level at which banks report transactions for the purpose of combating money laundering.

Will consumers have to do something?

A summary of the Treasury plan indicated that there would no longer be any record keeping or reporting requirements for individuals or businesses and that taxpayers would not face any burden. The Treasury also noted that banks and other financial providers already have access to this information and are already reporting interest income above $ 10.

Financial institutions would report the information on an extended 1099-INT form. Treasury Secretary Janet Yellen said the forms would include a box for total deposits or inflows and a box for total withdrawals or outflows.

Although the forms do not list taxable transactions, customers still may not know what to do with the information, Scott Earl, president and CEO of Mountain West Credit Union wrote in a comment posted in Arizona Republic.

Are the banks facing new obligations?

Yes. Banks and other financial institutions should track and report all of these new transactions to the IRS. This could increase their costs and possibly lead to increased fees charged to customers.

“Just because raw data exists somewhere in a system does not mean that it is easily compiled or produced,” said a letter sent to congressional leaders by the Consumer Bankers Association, the American Bankers Association and nearly 40 other financial and industrial groups.

Are the banks more responsible?

May be. One of the main criticisms of the proposal is privacy concerns, especially if they are the result of a data breach. It doesn’t help the White House case that a recent leak revealed tax information for 25 of the richest Americans. Details of their personal files were obtained and disclosed by ProPublica.

“This proposal would create significant operational and reputation challenges for financial institutions, increase tax preparation costs for individuals and small businesses, and create serious financial privacy concerns,” the letter said from banking and industry groups.

“It would create a huge liability on all parties involved in requiring the collection of financial information for almost all Americans without a proper explanation of how the IRS will store, protect and use this huge mine of personal financial information,” adds the letter.

Banks and credit unions say they will need to hire additional staff to help clients and their tax professionals understand the reports and how the IRS might use them.

Could banks lose customers?

May be. Polls have indicated that some “unbanked” people cite suspicion of banks or the government as reasons for going without checking or savings accounts. The proposal, if adopted, would not help in this regard. Unbanked people typically have to rely on check cashing and other more expensive options to meet some of their financial needs and often cannot qualify for mortgages or other traditional loans.

“This proposal would almost certainly undermine efforts to reach vulnerable populations and unbanked households,” the industry letter told Congress.

Still, it does not seem likely that many of the existing customers of banks or credit unions will leave the mainstream if the proposal is passed.

What’s the tax gap anyway?

It’s the difference between what the IRS collects on behalf of the government and what the agency considers all taxpayers legally owe. About 15% of money owed to the federal government goes unpaid, according to Natasha Sarin, assistant deputy secretary at the Treasury Department.

In addition to deceiving the government, supporters say the tax gap raises a fundamental question of fairness.

“Today’s tax code contains two sets of rules,” Sarin wrote in a summary of the proposal. “One for regular wage earners who declare virtually all the income they earn and another for wealthy taxpayers, who are often able to avoid much of the taxes they owe.”

How else could Biden help the IRS?

The White House would like to increase the IRS budget by roughly $ 80 billion over the next 10 years, with increased funding used to hire more staff, invest in technology upgrades, and pursue other targets to increase government revenue and reduce the tax gap.

Just knowing that the IRS would have access to certain bank account details could convince more taxpayers to pay what they owe.

“There is a direct relationship between the information the IRS has (and a taxpayer’s voluntary compliance rate),” Sarin said.

What is the turnover at stake?

Sarin’s letter indicated that the $ 600 account reporting proposal, if passed, could help the IRS generate around $ 460 billion over the next decade, in addition to $ 320 billion over the next decade. the next decade through staff increases and other enforcement measures, if approved.

Could all of this lead to more audits?

Yes, especially with the increase in IRS funding and staff. IRS audit rates over the past few years have fallen steadily – to just 0.5% in 2020, or one in 200 individual taxpayers. If the rule on banking transactions is passed, the auditors of the The IRS might be able to ask more informed questions during exams.

Sarin’s letter indicated that the White House would like to see audit rates rise among affluent households earning $ 400,000 and above, but not for those below that threshold.

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