Readers have undoubtedly heard something of the Biden administration/Treasury Department proposal to expand the scope of bank reporting requirements on customer accounts. The proposal has elicited reactions ranging from indignation to rebellion, but what is it exactly? The New York Times had a good story earlier this week, but the story is a little short on the substance of the proposal (“the administration wants banks to give the Internal Revenue Service new details on their customers and provide data for accounts with total annual deposits or withdrawals worth more than $600”).
Like other stories out there on the proposal, whatever it is, the Times stories lacks a link to the proposal itself. I have seen it variously described in the stories and therefore set off in search of the Ur text. It is not easy to find.
The proposal seems not to exist in the form of a proposed statute or regulation. I found what I believe to be the official Treasury Department description of the proposal in the 114-page General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals (May 2021). Buried in the “explanations” at pages 88-89 is the proposal to “Introduce Comprehensive Financial Account Reporting to Improve Tax Compliance.” Here is Treasury’s description of the proposal:
This proposal would create a comprehensive financial account information reporting regime. Financial institutions would report data on financial accounts in an information return. The annual return will report gross inflows and outflows with a breakdown for physical cash, transactions with a foreign account, and transfers to and from another account with the same owner. This requirement would apply to all business and personal accounts from financial institutions, including bank, loan, and investment accounts, with the exception of accounts below a low de minimis gross flow threshold of $600 or fair market value of $600.
That is the heart of the proposal. The Treasury description continues:
Other accounts with characteristics similar to financial institution accounts will be covered under this information reporting regime. In particular, payment settlement entities would collectTaxpayer Identification Numbers (TINs) and file a revised Form 1099-K expanded to all payee accounts (subject to the same de minimis threshold), reporting not only gross receipts but also gross purchases, physical cash, as well as payments to and from foreign accounts, and transfer inflows and outflows.
Similar reporting requirements would apply to crypto asset exchanges and custodians. Separately, reporting requirements would apply in cases in which taxpayers buy crypto assets from one broker and then transfer the crypto assets to another broker, and businesses that receive crypto assets in transactions with a fair market value of more than $10,000 would have to report such transactions.
The Secretary would be given broad authority to issue regulations necessary to implement this proposal.
The proposal would be effective for tax years beginning after December 31, 2022
Most striking about the proposal is its breadth. It establishes “a comprehensive financial account reporting regime.” Treasury seeks to open a window onto virtually every active bank account “and other accounts with characteristics to financial institution accounts…”
Treasury Secretary Yellen ignored the incredibly broad scope and invasive nature of the proposal in June 16 Senate testimony: “We’re simply asking to add two boxes to that [IRS 1099-INT] form, one that would be the aggregate inflows into the account over the course of the year, and the second would be the aggregate outflows from the accounts. So it’s not detailed information.” Even when she is under oath Yellen is not to be trusted.
When she is not under oath, as in her little chat with CBS News (below), she is even worse, or so I conclude from my discovery of the Ur text. Yellen decries an alleged “tax gap” involving billionaires. There are something like 600 billionaires in the United States. The IRS could easily audit the returns of every one of them and may well do so.
The yawning gap here, however, is between the alleged target of the proposal (“billionaires”) and its scope (you, me, and the man behind the tree). And the gap between Yellen’s yapping and the truth.
“There’s a lot of tax fraud and cheating that’s going on.” Treasury @SecYellen tells @NorahODonnell the proposed $600 IRS reporting requirement for banks is “absolutely not” a way for the government to peek into American’s pocketbooks but to hold billionaires accountable. pic.twitter.com/M3VKOhdtSu
— CBS Evening News (@CBSEveningNews) October 12, 2021