WASHINGTON — In the wake of strong pushback from the financial services industry, including credit unions, and congressional Republicans, the Biden administration announced it is dialing back the scope of a proposal that would have required extensive reporting on deposit account inflows/outflows to the Internal Revenue Service.
NAFCU has dismissed the updated plan as little more than “window dressing," while CUNA said it's like going from "a bad dream to a waking nightmare."
Under a new proposal from Senate Democrats introduced on Tuesday, the scope of information financial institutions would have to provide to the IRS would be limited to requiring data be provided on accounts with total annual deposits or withdrawals worth more than $10,000, rather than the $600 threshold that was initially proposed.
The reporting requirement would not apply to payroll deposits for wage and salary earners or to beneficiaries of federal programs such as Social Security, according to the new Senate plan.
To the surprise of some after the IRS reporting proposal was not included in legislation earlier passed by the House Ways & Means Committee—including credit unions, which had thought they had scored a victory––Speaker of the House Nancy Pelosi (D-CA) stated it would appear in some form in the multi-trillion-dollar spending packages now before the House.
The proposal has been strongly backed by the Biden Administration, which is seeking income to offset the expense of those packages by closing what it and others are calling the “tax gap.” Stopping tax fraud has also been cited as a reason for the reporting proposal.
The administration has said that under the proposal the IRS would not monitor specific consumer transactions, but would instead use the bank account information to spot discrepancies between what individuals report on their tax returns and what their bank accounts show, noted the New York Times.
‘Flat Out Lie’
The issue has been divisive, with Senate Republicans outspoken in criticizing the proposal, which Sen. Ron Wyden (D-OR), chairman of the Senate Finance Committee, has called some of the Republican accusations a flat-out “lie” promulgated by lawmakers at the behest of “donors and allies” who “want nothing more than a crippled IRS. unable to go after their cheating,” the Times added.
Under the newly revised plan, financial institutions would not be required to send daily transaction reports to the IRS, but rather “two numbers once per year,” according to Wyden: “The total amount going into an account, and the total amount going out of it.”
The Treasury Department said that the Biden administration would back the narrower proposal because the IRS already has information about American workers and retirees, according to the Times report.
NAFCU Response
Responding to the revised plan, NAFCU President and CEO Dan Berger said in a statement, “It has become abundantly clear that Americans oppose the IRS obtaining additional information on their financial accounts. The updated plan is nothing more than window dressing in an attempt to shore up support for a flawed proposal. Instead of creating financial privacy risks for consumers and adding compliance costs for our nation’s community financial institutions, Treasury and the IRS should focus its attention on the data it already has to increase tax compliance.”
CUNA Response
Ryan Donovan, CUNA's EVP and chief advocacy officer, said in response, “Every time this proposal changes, it gets worse. For the country’s minimum wage workforce, there is no fundamental difference between a $600 reporting threshold and a $10,000 reporting threshold. Now proponents expect credit unions and banks to play arbiter, declaring what does and doesn’t meet proposed exceptions like wages and down payments. They’ve just taken something very invasive and made it incredibly more so while turning an average compliance bad dream into a waking nightmare. The revised proposal is a huge leap in the wrong direction.”