As the House Ways and Means Committee completed its markup of tax legislation, the Biden Administration renewed its push for Democrats to add a controversial plan to require credit unions and banks to report the inflows and outflows from customer accounts to the Internal Revenue Service.
The proposal was not in the bill approved by the committee, 24-19, on Wednesday. However, it could be added during several steps in the legislative process, including when the Ways and Means bill goes to the House Rules Committee.
During the past two days, Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig have written letters to Ways and Means Chairman Rep. Richard Neal, R-Mass., urging him to add the controversial proposal that was contained in the president’s FY22 budget.
President Biden proposed requiring financial institutions to report data from accounts that have “gross flow thresholds” over $600 as a way of increasing tax compliance. Credit union and bank trade groups are opposed to the plan, contending that it would increase their regulatory costs.
Credit union and banking trade groups, as well as Ways and Means Republicans, have been fighting hard to ensure that the provision is not in the tax bill.
Yellen said the reporting requirement is needed to increase taxpayer compliance.
“It is clear that when taxpayers know that this information exchange exists, their voluntary compliance rises,” she wrote in a letter to Neal. “But for certain income streams that accrue disproportionately to upper-income households, there is no information available to the IRS from third parties presently. As a result, underpayment is rampant.”
Yellen added that the reporting proposal was designed to minimize costs for financial institutions since it builds on an existing reporting structure that credit unions and banks use to report interest earned in a bank account.
In his letter, Rettig wrote, “This additional information will improve our ability to effectively administer the tax code leading to higher rates of compliance—especially those whose sources of income are not currently subject to information reporting.”
Even if the bill is not included in the bill that emerges from the Ways and Means Committee, it still could be added when the bill goes to the House Rules Committee or by the Senate.
Some House Democrats reportedly want the provision to be added as a way to help pay for the full restoration of the deduction of state and local taxes.