Proposal to Close the “Tax Gap” Could Give the IRS More Info About Your Bank Account
(NEXSTAR) – A tax reform proposed by the Biden administration would require financial institutions to send the Internal Revenue Service more information about the bank accounts of many Americans, which would cause a pullback from a number of Republican politicians.
In an effort to close an unpaid tax revenue gap estimated at nearly $ 175 billion a year, Treasury Secretary Janet Yellen urges Democrats to uphold the Biden administration’s comprehensive proposal to give the Internal Revenue Service more resources to identify tax evaders.
In addition to $ 80 billion to increase staffing and enforcement efforts, the Biden administration’s proposal would require financial institutions to report more information on the total inflows and outflows of bank accounts.
With lawmakers continuing to work on the details, however, the proposed reporting rules were not incorporated into a draft House Ways and Means Committee tax provisions.
In a letter to the Chairman of the House Ways and Means Committee, Richard Neal (D-Mass.), Yellen underscored the importance of the measure.
“When considering specific policy choices when designing an information reporting regime, it is important to ensure that the reporting regime is sufficiently comprehensive, so that tax evaders are not in a position to structure financial accounts to avoid it, ”Yellen wrote. “Any suggestion that this whistleblowing regime will instead be used to target law enforcement efforts on ordinary Americans is totally wrong.”
It is not yet clear what the final proposal might look like, but in written testimony on June 8, IRS Commissioner Charles P. Rettig described a reporting regime that would require annual gross inflows and outflows of ” all business and personal accounts of financial institutions, including bank, loan and investment accounts ”containing at least $ 600. Unlike some who have falsely reported, the plan does not call for monitoring individual transactions, but rather focuses on the total annual flow of funds.
The low threshold is designed to flag taxpayers who report little income but hide large sums of money by transferring them to different accounts, Chuck Marr, senior director of federal tax policy at the Center on Budget and Policy Priorities, told Politico. .
“It just helps the IRS to better detect instances of non-compliance, to find the people who are cheating,” Marr said.
The current amount that triggers a report to the IRS is $ 10,000, according to the bank secrecy law.
According to the Treasury, the increased application of the IRS proposed as part of Biden’s Build Back Better program would not affect people with less than $ 400,000, but would focus on those with the highest incomes.
The proposal has recently been criticized by members of the Republican Party.
Dozens of Republican lawmakers from nine states on Monday signed a letter saying the proposed IRS oversight change would not be “necessary or helpful in closing the tax gap” if the IRS did not have the resources to enforce the tax code.
The letter also claimed that increased communication between the IRS and financial institutions could expose more Americans to a cyber attack and potentially raise privacy concerns for consumers who may forgo opening an account.
Supporters of the measure say it is essential to prevent the country from losing billions of dollars each year and from being forced to raise taxes to make up for money owed by tax evasion.
The US Department of the Treasury estimates that the difference between taxes owed to the government and taxes actually paid will total approximately $ 7 trillion over the next decade.
The IRS did not immediately respond to a request for comment.
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