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    Treasury Offers Facts v. Fiction Points On Bank Account Reporting

    Congress has not yet passed President Biden’s Build Back Better plan, H.R. 5376, as Democrats struggle to get buy-in from a majority of their members. Unlike the $1.2 trillion Infrastructure Investment and Jobs Act, which passed Congress with bipartisan support on November 5, no Republicans are supporting the larger $1.75 trillion package that uses tax increases and new compliance measures to pay for the legislation.  

    A controversial provision of the Build Back Better bill is bank account reporting, the requirement that financial institutions report total bank account outflows and inflows from a taxpayer’s accounts on a yearly basis. The original threshold for reporting was set at $600 but now has been raised to $10,000. Bank reporting would become effective for the tax year 2023. 

    Because of the controversy surrounding bank account reporting and the “widespread mischaracterization” of the plan, the Treasury Department has taken the unusual step of releasing a fact sheet in advance of bill passage that explains what the provision does and does not do. Below are key points about the reporting requirement as described by Treasury. 

    How Reporting Works

    • Two data points would be reportable by financial institutions: the total amount of funds deposited into a bank account and the total amount withdrawn over the course of a year if $10,000 or more in the aggregate. 
    • Banks can round the figures they report to the nearest $1,000 instead of reporting exact figures. 

    What is Not Required

    • Exempts wages, salaries and federal benefits from reporting.
    • Banks do not have to provide information on individual transactions.

    Examples: 

    1. Taxpayer A has $56,000 in direct deposits from his salary each year and no other income. Outflows are under $56,000. Taxpayer A’s account would not be subject to bank account reporting. 
    2. Taxpayer B reports $10,000 of income on his tax return but has $10 million of flows in and out of her bank account. Taxpayer B is subject to bank account reporting. Treasury notes this summary information will help flag for the IRS that the taxpayer may be underreporting her income. 

    Senate Finance Committee Chairman Ron Wyden, D-Ore., explained further that there will be no additional reporting if a taxpayer does not have $10,000 above the taxpayer’s paycheck, Social Security income, or other federal benefits coming in or going out. If an individual spends a significant amount from savings for a major purchase, there will be no additional reporting if the amount of money coming into the account does not exceed wages +$10,000, Wyden said. 

    Treasury Justification

    Treasury emphasized that the provision is “extremely limited” and fits with current reporting requirements of over $10 in interest a year and the reporting of $10,000 cash transactions. Treasury also notes that the IRS already has information on wage and salary income and on federal benefits from W-2s and 1099s, so only those “accruing other forms of income in opaque ways are a part of the reporting regime…” 

    Treasury insists the provision will not involve raising taxes on any taxpayers. Instead, it makes it easier to collect taxes that would be owed if income was properly reported. IRS resources and information will be focused on detecting and addressing high-income evasion, Treasury contends, and audit rates will not rise for taxpayers making under $400,000 a year. 

    Finally, Treasury says this reporting would eliminate the existing disparity between American workers, whose income is already reported to the IRS, and wealthy individuals who earn income in ways not visible to the IRS.    

    Bankers’ Group Opposed

    The American Bankers Association (ABA) opposed the measure, calling it “bad tax policy” in a letter to House congressional leaders. The group says the provision “raises significant concerns regarding the privacy of personal financial information, cost of implementation and impact on average Americans.” Financial institutions will be required to develop the necessary technology and processes to identify the accounts, report to the IRS and customers and educate customers and bank staff on what the information does (and does not) mean, the group notes. The ABA offers this example of the reach of the reporting requirement.  

    Examples: Consider a taxpayer who earns $18 an hour, has no other income and pays rent and other living expenses – the sum of gross inflows and outflows after taxes would be around $60,000. Also, self-employed contractors who buy materials and install them for customers will commonly have gross inflows and outflows that far exceed the income they earn and will be subject to reporting.  

    Conclusion

    The reporting provision is set to take effect in 2023. Reporting will be done on Form 1099-INT, the form already used to report interest. Although H.R. 5376 is supposed to be voted on by the end of November, as FD Insights went to press, it was still unclear whether the legislation will pass at all. If it does, the bank reporting requirement with the higher threshold is sure to be included. 

     

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