In an effort aimed at increasing taxpayer compliance, the Biden Administration has proposed that financial institutions be required to report additional account holder information in an enhanced annual IRS Form 1099-INT.
Beginning in 2023, banks, credit unions, and other entities would be required to annually report to the IRS the gross inflows and outflows of business and individual account holders with a breakdown for cash, transactions with a foreign account, and transfers to and from another account with the same owner. These requirements would apply to savings, transactional, loan, and investment accounts of $600 or more.
There have been recent reports that the proposal will increase the account threshold from $600 to $10,000. The revision is an attempt to shore up support for a flawed proposal, which is opposed by 67% of Americans. Proponents will now expect Main Street financial institutions, like community banks and credit unions, to play arbiter, declaring what does and does not meet proposed exceptions like wages and down payments.
All financial institutions currently report to the IRS information related to actual taxable events for customers and members, earned interest and mortgage interest paid. This proposal would result in financial institutions turning over sensitive account details that do not constitute taxable events to the IRS. This will leave the IRS with immense personal financial data that could be used in a manner that is not detailed in the proposal. Privacy and data security are paramount issues for all of us as Americans.
Our organizations are very concerned about the detrimental impact this new requirement will have on consumers and our members. According to a FDIC study, the main reason Americans are unbanked is due to a distrust of financial institutions. Forcing financial institutions to enforce tax law exacerbates a problem that disproportionately hurts low-income communities. These are communities that our mutual members have spent decades trying to meet their unique financial needs at a fair price.
Just like our customers and members, we are doubtful that data will remain safe and private from hackers while being safeguarded by the IRS. The massive data breach at the federal Office of Personnel Management in 2014 and this year’s IRS leak of federal tax returns of many wealthy Americans underscores our doubt.
The negative impacts of this intrusive policy will also negatively impact those Main Street businesses that are dependent on local financial institutions. Due to the complex nature of the reporting requirement, community banks and credit unions will be forced to bear a significant increase in the costs for compliance and data security. More importantly, this proposal has already started to undermine our members’ relationships with their customers and members.
Rather than forcibly deputizing the financial services sector as an extension of the IRS, the U.S. Treasury Department should focus on using the data it currently has to locate those who are delinquent on their taxes.
Our organizations remain committed to block this proposal in effort to protect the privacy and security of consumers. We ask you to join us by contacting your member of Congress today.
About the Authors:
John E. McWeeney is president and CEO of the New Jersey Bankers Association. Patrick C. Conway is CEO of CrossState Credit Union Association.
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