The Biden Administration Proposes IRS Bank Profiling
President Biden recently announced the American Families Plan, designed to benefit the middle class while providing economic benefits to all Americans. While the American Families Plan has a lot to look forward to, how will Biden’s administration pay for it? The answer is pretty simple; the Biden administration will make this possible via greater IRS enforcement. Financial institutions will be required to increase reporting obligations, and the rich would have to pay more significant taxes.
Simply put, the American Families Plan requires banks and financial institutions to report more than the usual suspects. Apart from reporting data like interest earned, capital gains, and losses, banks and financial institutions would also be required to report aggregate account inflows and outflows.
With this information, the IRS will know everything there is to know about your bank accounts. The IRS will know if you have made any income, the amount of money you have in your bank accounts in a given year, and how much money has been transferred. Presently, it is unclear how all of this will work. Still, one thing is sure this move will require financial institutions to enhance their compliance efforts to eliminate the massive blindspot the IRS is currently dealing with.
For now, taxpayers are not required to report the amount of money they have in their bank accounts, how much they withdrew or deposited, and so on. Like all Americans, even the self-employed self-report to the IRS based on the honor system.
Currently, banks are required to report deposits of $10,000 or more to the IRS. Still, if this new proposal is passed, financial institutions would report deposits and withdrawals of $600 or more for all personal and business accounts.
Numerous banks and financial institutions have opposed this proposal, like the Kansas Bankers Association. This new reporting system would violate the customers’ right to privacy and create expensive and unnecessary burdens for banks. Additionally, it will also increase the cost of tax preparation for smaller businesses. This move would affect all banks, but small community banks with limited resources would suffer the most.
ICBA and other community bank associations have taken up arms against this proposal, sending a hearing statement and fact sheet, a joint letter, a Minority Bank Advisory Council letter to congressional leaders, and thousands of grassroots messages.
The most important issue raised was that bank account reporting to the IRS would affect bank customers’ privacy, pushing them away from forming banking relationships. Furthermore, the IRS would be flooded with personal information of American citizens that would be difficult to process or protect from hacks.
The ICBA noted this move would push poorer and minority customers away from the banking system entirely. This would result in the unbanked falling prey to non-bank check cashers and lenders, where they would have to pay exorbitant fees and rates. Moreover, these individuals would put their security at risk by carrying cash. Most importantly, many American communities do not trust the government, especially the IRS.
While the government claims it would solve the tax gap problem with this move, the ICBA notes that it would not make any difference whatsoever. The IRS already collects more data than it should, and it should focus on making better use of said data than collecting more data than it would know what to do with.
Biden’s proposal requires excessive reporting that provides little to no helpful information. Most importantly, it would do more harm than good, considering how banking customers’ privacy will be at stake and how it would severely affect the banking system in the long run.
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