A Biden Administration proposal to require banks and credit unions to report information on customer account “flows” would create a huge burden for those institutions, financial service trade groups, including the Credit Union National Association and the National Association of Federally-Insured Credit Unions, told the Senate Finance Committee’s Taxation and IRS Oversight Subcommittee this week.
The proposal is part of the administration’s effort to close the “tax gap,” the amount taxpayers owe the federal government and the amount they pay.
“High-income taxpayers disproportionately accrue income in opaque sources—like partnership and proprietorship income—where the [Internal Revenue Service] struggles to verify tax filings,” the Treasury Department said last month, in explaining the need for the new reporting requirement. “As a result, up to 55 percent of taxes owed on these less visible income streams is unpaid, with disproportionate levels of non-compliance for those at the top of the income distribution.”
“This reform aims to provide the IRS information on account flows so that it has a lens into investment and business activity—similar to the information provided on income streams such as wage, pension, and unemployment income,” the department continued.
But in a letter to the Senate Finance Committee’s Taxation and IRS Oversight Subcommittee, the financial trade groups, including the American Bankers Association and the Independent Community Bankers of America, said that the new reporting requirements would cause burdens at banks and credit unions that are not justified by the potential and “highly uncertain” benefits.
In the letter, the groups suggested that increasing Internal Revenue Service funding to facilitate targeted auditing of tax returns would be a much more efficient and effective approach.