Modified IRS Reporting ProposalOctober 20, 2021
On Tuesday, Oct. 19, Sens. Elizabeth Warren (D-Mass.) and Ron Wyden (D-Ore.), Chair of the Senate Finance Committee, presented the Administration’s new proposal on establishing a tax information reporting regime for the IRS. The initial proposal was included as part of the $3.5 trillion budget reconciliation package as a revenue raiser. The proposal aims to enforce greater tax compliance through a mandate on financial institutions to report to the IRS annual inflow and outflow totals from any customer with more than $600 at any time during the year.
The revised proposal is a response to aggressive lobbying by banks and Republican pushback, with key Senate Democrats coalescing around a more limited plan to crack down on tax cheats. The modified plan would require financial institutions to report gross annual deposits and withdrawals only for accounts with annual deposits of more than $10,000, not $600 as originally proposed. Reporting would exclude payroll deposits and federal benefits such as Social Security.
Among some of the key concerns with the proposal is the likelihood that bank and other financial institutions would pass on the increased costs they are incurring to customers, namely, small businesses, not to mention the increased cost for tax preparation. Additionally, privacy and data security are also major concerns as massive data transfers are a ripe feeding ground for hackers and online theft, and neither the original nor the updated proposal include sufficient details on how the data will be properly protected.
NSBA will continue urging lawmakers to remove this proposal and will be calling on the administration to do the same.