Tax battle looms over IRS plans for more banking information: NPR
Rafael Henrique / SOPA Images / LightRocket via Gett
A new fight is brewing for taxes.
The Biden administration wants to require banks to provide the Internal Revenue Service (IRS) with information on the amount of money entering and leaving individual accounts each year.
It’s part of a plan to catch people who might cheat on their taxes and raise much-needed income to help fund the Biden agenda. But Republicans are fighting back fiercely, calling the move an invasion of privacy, while banks oppose increased surveillance.
As with many battles involving taxes, many claims – some of them bogus – are being made.
Here is what is going on.
What does the Biden administration offer?
The administration wants to give the IRS more tools to help spot people who might cheat on their taxes. It might also help deter tax evasion – just as drivers are less likely to speed up when they know there is a cop around the corner with a radar gun.
Biden administration wants to improve tax collector financial radar, requiring banks and other institutions to tell the IRS how much money is coming in and out of individual accounts each year.
Despite Republican accusations that the IRS wants to spy on taxpayers, it’s important to note that banks wouldn’t report individual transactions – just an annual total of deposits and withdrawals.
Initially, the proposal would have applied to any account with at least $ 600 in total annual cash flow, but that has now been reduced in response to opposition from Republicans and banks.
Under the revised proposal, banks would only have to report accounts with at least $ 10,000 in annual deposits or withdrawals, not counting paycheck deposits or government benefits.
Samuel Corum / Bloomberg via Getty Images
Why does the administration want this information?
The information would be used to help reduce the âtax gapâ. The Treasury Department estimates that about $ 600 billion in income taxes owed are not collected each year, often because taxpayers do not report their income accurately.
Closing this gap and collecting more taxes owed would help Democrats pay for their ambitious agenda.
It would also make the tax system fairer. Employees have few opportunities to cheat on their taxes because the IRS already knows how much they earn. Their income is declared by employers each year on their W-2.
However, the IRS has less information on other types of income, such as rent paid to owners or profits made by business owners. Because this income is less visible to the government, underreporting by these taxpayers is more common.
How would the IRS use banking information?
The IRS could look for discrepancies between a taxpayer’s total bank deposits and withdrawals and their reported income. If someone’s bank account grows by a million dollars in a year when their reported income is only $ 50,000, the IRS might have a few questions.
Deputy Assistant Secretary of the Treasury Natasha Sarin said the bank information would help the IRS more effectively target its audit resources. But she points out that there is no additional paperwork for taxpayers.
âFrom a taxpayer’s perspective, literally nothing is required,â says Sarin. “Everything that happens from [honest] the taxpayer’s perspective is the lower likelihood of an expensive audit, when the IRS is better able to determine who might not be compliant and who is. ”
Tom Williams / Pool / Getty Images
Why are the banks opposed to the idea?
Banks argue that providing summary information on millions of accounts would be an expensive headache, especially for smaller banks. They also increase the risk of information being hacked.
Rob Nichols, president of the American Bankers Association, agrees that tackling tax evasion is an important goal for the government, but insists that the proposed reporting requirement is the wrong way to go about it. .
“It’s too brutal an instrument,” says Nichols. “It’s not clear if they can keep him safe. And he’s going after ordinary Americans who work hard and pay their taxes.”
Strong opposition from banks and congressional Republicans has put the administration and Democrats on the defensive. Just a few days ago, they cut some of their plans, but they still intend to push them through Congress. For now, the prospect of passage remains uncertain.