Community banks are speaking out against President Joe Biden’s proposal to require financial institutions to report to the IRS deposits and withdrawals of all business and personal accounts with a balance of more than $600.
Biden’s budget proposal has drawn strong opposition from the Independent Community Bankers of America’s Minority Bank Advisory Council. In a letter to Congressional leaders earlier this month, the Advisory Council wrote the proposal “would indiscriminately cover the accounts of nearly all Americans.” Implementation costs would be better spent “deploying resources to local communities,” the group wrote, asserting the requirement would only heighten taxpayer complexity, raise compliance barriers and “create erroneous filings.”
“Our primary concern is that the proposal would undermine the critical relationship of trust we foster within the communities we serve — communities prone to distrust of institutions and government agencies,” the council wrote. “Invasive and indiscriminate account reporting would undermine the policy priority of bringing more people into the banking system and may drive many of those in the system to leave.”
The proposal would force private institutions to function as government agents, ICBA said. “The proposal would require financial institutions to perform a police function on behalf of the IRS, an inherently governmental role that is inappropriate for private sector institutions,” the organization wrote. “Community banks collect financial data for the purpose of serving their customers; to safeguard their funds, provide checking, card, and other payments services, and extend credit. The IRS has no justifiable right to this data. It is not and must not be a public good. This overreaching proposal would fundamentally redefine the relationship among financial institutions, their customers and the IRS.”
In a June letter to the House Ways and Means Committee, the American Bankers Association, ICBA, and other banking lobbyists urged Congress take caution in considering the proposal, writing that “financial institution reporting is already robust,” the creation of the new reporting standards would be more complicated than expected and that such benefits could “be exaggerated.”
“This proposal will have real costs, not only for government, but also for financial institutions, small businesses and individual taxpayers,” the groups wrote. “Strengthening IRS funding and overhauling outdated technology to use existing information reporting to facilitate targeted auditing of questionable tax returns is a much more efficient and effective approach to closing the tax gap.”
Barry D. Haugen, president of the Independent Community Banks of North Dakota, shared similar concerns. He noted another major issue his organization has with the proposal is the possibility of further alienating the unbanked population already skeptical of government and other large institutions. He also questioned what the government would do with the data.
“We’re certainly not in favor of it,” he added.
The Biden administration has proposed other major tax overhauls covering the banking industry since taking office in January. Those proposals would help fund the $2.3 trillion American Jobs Plan and $1.8 trillion American Families Plan President Biden said are needed to help middle- and low-income families, including:
- Raising the top income tax rate to 39.6 percent from the 37 percent set under former President Donald Trump.
- Raise the top tax rate on capital gains and dividends to 39.6 percent from 20 percent.
- Expand the 3.8 percent Net Investment Income Tax to apply to other types of income not currently included.
- End the Step-up on the basis for gains of more than $1 million at death.
- End the tax deferral of like-kind exchanges of more than $500,000.