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Proposal Requires Banks To Report Transactions Over $600 to IRS
By Mike Scott, NEMOnews Media Group
If a Biden administration proposal is adopted by Congress as part of the budget reconciliation package, financial institutions would be required to report more information on the accounts of everyday Americans to the Internal Revenue Service.
The goal of the proposal is to collect additional taxes on individuals and business on income that is earned, but not reported.
The Treasury Department estimates that it’s missing out of $166 billion dollars in taxes per year.
The proposal would require financial institutions to report only the total inflows and outflows, but no details on individual transactions.
The proposal would impact nearly everyone with a bank account.
It sets a low threshold of only $600. For example, if a person or business has at least $600 in a bank account, the bank would be required to report the amounts of all credits into and debits our of the account to the IRS. These would include paychecks and electronic payments.
The American Bankers Association opposes the measure. In a September 6 letter to the Senate Finance Committee and other congressional committees, the ABA said, “ABA and its members firmly believe that Americans should honor their tax obligations, but it is far from clear that requiring banks to report on every single customer financial account with gross inflows and outflows above $600 – creating a mountain of new data – will lead to better tax compliance.”
The ABA continued, “While all banks would be impacted, the massive and expensive effort to provide this data will especially burden small community banks.
“It would require us to report to the IRS on the deposits and withdrawals of all business and personal accounts of $600 or more,” said Paula Fox, President of Exchange Bank of Northeast Missouri. “People need to be aware of this proposed law and what affect it may have on them.”
“The proposed rules would require banks to report any transaction above $600. In order to do this, it will require new/additional software to be developed by our core systems to find each of these transactions and report them,” said David Alderton, President of Peoples Bank of Wyaconda. “This will be an enormous cost to all financial institutions. I would imagine it will also require additional staffing to assist with this as well.”
“Customers have already been calling, concerned about the impact on them and their accounts,” said Kahoka State Bank President Bev Laffoon. “Comments such as ‘of course it’s none of their business’ of which I cannot disagree.”
“We will have expense for software to monitor accounts for reporting, added mailing expense as 1099 IRS forms would have to be mailed to any account holder meeting requirements, and of course added man hours to monitor software and mail 1099s, plus there is the added concern of liability for errors in reporting,” said Fox. “We are not sure how much paperwork would be involved for customers, other than they would receive a 1099 tax form indicating what had been reported to the IRS, just like they do for interest earned on their deposits.
“Paperwork is astronomical as it is and no doubt in my mind it will increase,” added Laffoon.
These bankers also expressed privacy concerns.
“I don’t feel it’s the government’s business how people or businesses spend their money. Does the government need to know you replaced your tires on your car or truck this month? Or that you replaced the tires on your child’s car? What about if you send your child in college more than $600 to buy books or meal tickets? Or does the government want to know what you are buying your kids and other family members for Christmas. These transactions over $600 will be reported if this legislation passes. It’s not the government’s business,” said Alderton.
“I also wonder how safe it will be having all customer information in one spot. With the data breaches happening today around the world, the IRS will definitely be a target as the holder of all this information,” he continued..
“Privacy is of great concern, said Fox. “Banks have always prided themselves about keeping their customers’ information private, and in fact, we have several regulations that require we keep all non-public customer information private, plus examiners keep close tabs on banks to make sure they do keep customer information private. This IRS regulation appears to throw those regulations out the window.”
Will people and business stop using banks?
“We feel people will simply stop using banks to avoid this reporting and make decisions to use unsafe other options for their money,” said Fox.
Alderton’s opinion was a little different.
“People won’t quit using banks, but I would, however, anticipate decreased usage. Cash transactions will become much more common. Cash will be kept at businesses and never deposited in order to avoid reporting. Usage of checks, debit cards and credit cards will decrease in my opinion,” he said.
In a press release last week, Congressman Sam Graves (R-MO), said, “Buried deep within the Administration’s proposed budget is a sneaky little provision that would require banks large and small to report all transaction data for every bank account with more than $600 of deposits or withdrawals in a year.
That’s virtually every American’s bank account. That not only places a huge reporting burden on small community banks, but it’s a huge invasion of our privacy. The IRS’s job is to collect taxes, not collect every piece of private financial data from every American they can.”
In response to pushback from banks and citizens, congressional lawmakers have floated the idea of raising the $600 threshold, but no figure has been announced.