President Biden’s push to enlist a beefed-up IRS to wring additional money out of large corporations and wealthier taxpayers is being greeted with skepticism from the banking industry and stoking fears that tax collectors will mishandle law-abiding Americans’ deposit and withdrawal information.
As part of his $1.8 trillion “American Families Plan,” the president also proposed requirements that financial institutions expand their annual reporting to cover account inflows and outflows — a step beyond the typical wage and earnings information that Americans provide the federal government when they file income tax returns every year.
Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, said the administration has the right idea on the reporting requirements but that the scope is much too broad and would likely leave the IRS with reams of relatively useless information.
He said the concealment or omission of taxable income, which the additional reporting requirements would presumably be designed to catch, does happen but sophisticated tax evasion would still be a problem with stepped-up enforcement.
The requirement for banks to report annual account inflows and outflows would extend to peer-to-peer payment services such as Venmo but wouldn’t require individuals and businesses to report any additional information to the government, according to an article in The Wall Street Journal.
The Treasury Department said the new requirements don’t increase any reporting burdens on taxpayers and would simply make financial institutions add account inflow and outflow data to their annual reports.
“Providing the IRS this information will help improve audit selection so it can better target its enforcement activity on the most suspect evaders, avoiding unnecessary (and costly) audits of ordinary taxpayers,” Treasury said.
“The IRS currently has broad authority to access this data, but under the proposal, the administration would essentially be requiring banks to become a tool in the IRS arsenal,” said one industry expert familiar with bank privacy issues.
Rosenthal said average taxpayers wouldn’t have to actively do much more but the mere threat of additional enforcement could send people scrambling to put their financial affairs in order
“Even if the IRS never uses it, even if it sits in a warehouse like in ‘Raiders of the Lost Ark’ … the question is: Will taxpayers be scared?” he said
He said he wasn’t sure that Americans would change their behavior and that most would probably be inclined to trust the IRS not to misuse personal information
The administration estimates that a funding boost for the IRS, combined with the new reporting requirements and improved technology, would generate $700 billion in revenue over 10 years
He and former IRS Commissioner Fred Goldberg estimated that the federal government could generate $1.4 trillion over 10 years through increased third-party reporting, improvements in technology and reconfiguring how the IRS conducts audits