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New Tax Proposal Allows IRS to Track Bank Transactions of $600 or More

by
Julie Farless
on
10/17/2021
New Tax Proposal Allows IRS to Track Bank Transactions of $600 or More

In the face of an estimated $7 trillion shortfall in tax revenue over the next ten years, the Biden administration is seeking a dramatic increase in the information financial institutions report to the government. They are proposing that account activities of $600 or more be included on the 1099-INT form that banks are currently filing, with the idea that having that information will facilitate tax collection on earned income that is not being reported. Banking industry officials are pushing back on the plan, saying that it will create an undue burden.

The proposed submission of data is driven by a tax gap that has grown beyond the collection abilities of the Internal Revenue Service. Pointing to repeated budget cuts that have left their agency unable to hire auditors, the IRS has said that the additional information would help them to bridge the $160 billion gap they estimate currently exists. 

The proposal takes direct aim at businesses and individuals who are purposely evading their tax liabilities, it does so by collecting information on almost all transactions within banking, loan, and investment accounts. It was addressed during a recent hearing before the Senate Banking, Housing, and Urban Affairs Committee during which Treasury Secretary Janet Yellen testified.

Though banking officials argue that the reporting requirements would be too invasive and labor intensive, Yellen insisted that the plan — which is part of the larger infrastructure bill — would be both effective and easily implemented. “It is a proposal to add two additional pieces of easily ascertained information onto the 1099-INT Form that banks already file; namely, the aggregate inflows into the account during the year and the aggregate outflows,” she said. “And I think it’s important to recognize that we have a tax gap that’s estimated at $7 trillion over the next decade. That is taxes that are due and are not being paid to the government that deprive us of the resources we need to do critical investments to make America more productive and competitive.”

Though proponents reason that increased monitoring is necessary in order to collect revenues owed to the government, financial industry executives question the move. BNA Bank CEO Bo Collins suggests that the low threshold of $600 will capture too much information for the effort to be effective, saying, “Six hundred dollars is an awfully small sum to set as the benchmark and could cause unnecessary burden and expense on the banking industry, not to mention the invasion of privacy on citizens, depending on whether they are proposing individual transactions or total sums of transactions to be reported.” Others like Mitch Waycaster, president and CEO of Renasant argue that it will open a Pandora’s box of problems. “The administration’s proposal to require financial institutions to track and submit the vast majority of their banking customer information to the IRS risks major data breaches, infringes on financial privacy and overburdens the banking system with massive data collection responsibilities, all for a purpose that is not obviously served by the proposal.” Still others simply say that the proposal will cost too much money for banks and taxpayers alike. 

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Julie Farless

Julie Farless

Martinez & Shanken, PLLC is a Certified Public Accountant (CPA) firm based in Gilbert, Arizona. We provide a full range of accounting, bookkeeping, consulting, outsourcing and business services, but we specialize in tax preparation. We work with you to ensure that your personal or business processes are conducted in a manner that ensures ongoing integrity in your financial transactions. We are available to answer your questions and help with your ongoing tax planning and changing business needs.

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