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To enforce tax compliance, the Biden administration has proposed requiring financial institutions to report to the IRS annual inflow and outflow totals from most bank, loan and investment accounts.
Congress is considering the proposal as part of a budget reconciliation package.
If a Biden administration proposal now being considered is adopted, financial institutions would be required to report more information on the accounts of everyday Americans to the IRS.
The stated goal is to collect taxes from rich individuals and businesses on income that is earned but not reported.
The proposal, however, would affect more than just rich people, with disclosure requirements that cover the vast majority of bank, loan and investment accounts.
Even so, a headline widely shared on Instagram from InfoWars, the conspiracy-oriented website run by Alex Jones, contains only an element of truth. The headline states:
"Biden’s Treasury Dept. Declares IRS Will Monitor Transactions of ALL U.S. Accounts Over $600."
The Infowars article under that headline goes on to make a more far-reaching claim: that the IRS will "audit virtually all financial transactions of Americans with bank accounts holding at least $600."Similar claims have been made on other social media.
The Treasury Department has made no such declaration. For now, the proposal to tighten bank disclosure requirements is just that — a proposal. And while it would feed more financial data to the IRS, it does not call for IRS audits of virtually all financial transactions.
Under the measure, financial institutions would be required to annually report gross inflows and outflows from all business and personal accounts — including bank, loan and investment accounts — if the inflows and outflows of an account total at least $600 in a year, or if the account has a fair market value of at least $600.
So, for example, if you had at least $600 in your bank account, the bank would be required to report the amounts of any debits or credits to that account to the IRS. If the debits and credits that flow through the account add up to at least $600 — including deposited paychecks or electronic payments through smartphone apps tied to the account — those totals would have to be reported, too.
Under the measure, the banks would report only the total inflows and outflows, but no details on individual transactions.
In making the proposal, the Treasury Department said the IRS estimates that for business income outside of large corporations, the "tax gap" — the difference between taxes that are owed and collected — is $166 billion a year. The Treasury says the focus of the proposal would be on "higher earners who do not fully report their tax liabilities."
The American Bankers Association opposes the measure.
"The proposal would create a significant burden on small businesses and community banks and add no discernible value to tax enforcement," the group said in a Sept. 7 letter to the House and Senate committee leaders, adding that "it is far from clear that requiring banks to report on every single customer financial account with gross inflows and outflows above $600 — creating a mountain of new data — will lead to better tax compliance."
Chuck Marr, senior director of federal tax policy at the Center on Budget and Policy Priorities, said the proposal would help identify business and partnership owners who report relatively low income to the IRS but have millions of dollars flowing through their accounts.
"It just helps the IRS get better at finding noncompliance, finding people who are cheating," he said.
Marr said setting a low threshold of $600 would make it harder for tax dodgers to set up multiple accounts and avoid having the activity in those accounts reported to the IRS.
An Infowars headline widely shared on Instagram stated that "Biden’s Treasury Department declares IRS will monitor" all accounts over $600.
The Treasury has made no such declaration. The department has made a proposal that Congress is considering.
Under the proposal, financial institutions would be required to annually report the total inflows and outflows from bank, loan and investment accounts, if the total is at least $600 in a year, or if the account’s value is at least $600.
The headline contains an element of truth but ignores critical facts that would give a different impression. We rate it Mostly False.
Instagram, post, Sept. 13, 2021
InfoWars, "Biden’s Treasury Dept. Declares IRS Will Monitor Transactions of ALL U.S. Accounts Over $600," Sept. 10, 2021
Treasury Department, "General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals," May 2021
Treasury Department, "The Case for a Robust Attack on the Tax Gap," Sept. 7, 2021
American Banker, "Banks escalate fight over IRS reporting in Biden budget plan," Sept. 08, 2021
American Bankers Association, "ABA Letter to Senate Finance and House Ways and Means Committees: Views on Tax Information Reporting Proposal," Sept. 7, 2021
Forbes, "Under Biden Plan, The IRS Would Know A Lot More About Your Bank Accounts," April 28, 2021
Cleveland.com, "Proposed IRS reporting of bank account information upsets Ohio’s community banks and Republican legislators," Sept. 13, 2021
Brookings Institution, "Give IRS the tools it needs to enforce tax rules and catch cheaters," Sept. 1, 2021
Center on Budget and Policy Priorities, "Biden Financial Reporting Requirement an Integral Part of Plan to Address Tax Gap," July 12, 2021
Center on Budget and Policy Priorities, "Reducing the Tax Gap: 5 Key Points on Information Reporting," Sept. 14, 2021
Email, William Gale, co-director of the Urban-Brookings Tax Policy Center, Sept. 14, 2021
Interview, Chuck Marr, Center on Budget and Policy Priorities senior director of federal tax policy, Sept. 15, 2021
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