White House proposal would send your bank account information to the IRS. What you need to know

A proposal from President Joe Biden’s administration to catch tax cheats is sparking privacy concerns and pushback from banks.

The plan, one of many under the Treasury Department’s 2022 wish list, would force banks to send information about transactions for all accounts worth $600 or more. Individual transactions would not be reported — just aggregated data.

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Though it’s far from becoming law, it has already sparked at least one viral Facebook post to ricochet around local groups who fear an invasion of privacy.

Channel 9′s Nick Papantonis talked to a tax expert to break down what you need to know about this topic.

Why would the IRS want this information?

Administration officials said it’s too difficult to identify people who are underreporting their taxes.

“The tax gap for business income (outside of large corporations) from the most recently published Internal Revenue Service (IRS) estimates is $166 billion a year,” the proposal said. “The scale of this revenue loss is driven primarily by the lack of comprehensive information reporting and the resulting difficulty identifying noncompliance outside of an audit.”

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By automatically collecting data, IRS staff members can look for bank accounts with large balances that don’t match up with their corresponding tax returns. That makes it easier to ferret out cheaters and will prevent staff members from wasting time auditing simple and honest returns.

What information would be collected?

“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,” the proposal states.

Essentially, this means a summary of transactions, both ingoing and outgoing, for every single personal, business or investment account worth at least $600. Though, the IRS could ask for less.

“An important part of this administration proposal is a very substantial amount of discretion given to the IRS as to precisely what it asks and requires that the banks give,” Steve Johnson, Florida State University professor and tax expert, explained.

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Why are banks against this?

Banks appear to be driven by three motivations.

First, this proposal creates a lot of work for them. They’ll have to dedicate time, technology and staffing toward collecting data and sending it to the IRS. Passing on the costs is no easy decision either.

“If it’s passed on to the depositors, then the depositors aren’t happy,” Johnson said. “If the bank doesn’t pass it on to anybody, then their profits go down; shareholders are upset.”

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Second, bankers said they have concerns about the IRS’ ability to handle the data in an era where cyberattacks are routine.

“The amount of information submitted would be massive, unmanageable, and of questionable relevance to the calculation of taxable income,” a letter from the American Bankers Association said. “The IRS is a constant target of cyber criminals and has recently suffered data breaches.”

Johnson agreed that the IRS would have trouble handling it, which is why he pointed out another Biden administration proposal was to increase the agency’s funding.

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“It’s practicable if the IRS gets a big increase to the budget,” he said.

Third, he said some people just don’t want their information being given to the government and the banks could be looking out for them.

Does the IRS have access to this information already?

Sort of. Johnson said you must hand it over if you’re audited, but it’s not routinely collected.

He compared U.S. information gathering to peer countries.

“It’s not unusual to expand information reporting when there’s a non-compliance problem,” he explained. “Lots of foreign countries — especially in Europe — demand more information of their taxpayers and more information about their taxpayers than the U.S. does.”

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How likely is this proposal to become law?

Johnson said he doubted it would ever see the light of day, explaining that it would be a politically toxic measure for Congress to vote on.

“There’s obviously very substantial opposition to this,” he said. “The administration may be playing the game of ‘We’ll ask for a lot and then we’ll probably get a little bit more than if we didn’t ask for as much.’”

He said it was a risk to pitch this to voters, who may view it as a serious overreach. Under that scenario, he said it would likely backfire on the administration and leave them with little ground to ask for any changes at all.

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