BRATTLEBORO — You may have heard that one of the proposals in President Biden's $3.5 trillion budget reconciliation bill is a provision that would require banks and credit unions (financial institutions) to greatly expand the information we are required to report to the IRS.
Under the president's proposed legislation, financial institutions would report data on customers' accounts in an information return. The annual return would 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 at financial institutions, including deposit, loan, and investment accounts, with the exception of accounts below $600.
This proposal is intended to provide a means to crack down on tax evasion by wealthy taxpayers, but the very low dollar threshold would mean the IRS can reach into the accounts of almost all Americans who maintain bank accounts.
We support efforts to close the “tax gap,” as it has been referred to, and believe that everyone, whether a natural person, sole proprietor, small business, or large corporation has a legal and moral responsibility to pay their fair share of taxes.
That said, we do not believe this proposal is the answer, and these new reporting requirements raise serious concerns about consumers' right to privacy.
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Under current regulations - specifically, the Right to Financial Privacy Act of 1978 - the IRS is required to obtain a subpoena before it can access this same information.
And privacy is a major concern: Can the IRS ensure it can and will keep secure the information it seeks to obtain?
There are numerous examples in recent years of the vulnerability of government computer systems, and the IRS itself has been hacked on multiple occasions. In 2016, hackers breached more than 700,000 accounts of taxpayers and, just this year, hackers breached more than 100,000 taxpayer accounts.
This proposal will likely also increase the cost of tax preparation for individuals and small businesses. This could also discourage some consumers from joining the banking system altogether out of a mistrust of government. This approach does not target only wealthy tax cheats, but instead captures extensive information on nearly every taxpayer.
Finally, it's questionable whether the new reporting requirements would improve the IRS's ability to identify the high-income tax evaders the administration is apparently targeting.
Instead, the proposal appears to capture the millions of small business owners who operate as sole proprietorships, needlessly increasing their tax preparation costs.
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We believe the IRS should instead focus on better utilizing the significant information it already receives and targeting those it believes are engaging in tax evasion, or better yet, eliminate tax loopholes altogether.
We live in a world in which words and phrases like “fake news” and “Orwellian” are bandied about with too much ease. But this proposal is not fake news, and it is fundamentally Orwellian.
We are a community bank; we exist to serve our communities and not to get involved in politics. But because we feel so strongly in opposition to this proposal, we are taking the unusual step of encouraging you to educate yourself on it.
And if you agree that it is overreaching, we encourage you to contact your members of Congress to voice your opposition as well.
To find how to contact your Representative(s) or Senators, visit congress.gov/contact-us.