The Treasury Department today released a report further detailing its proposals to shrink the tax gap as part of the American Families Plan that was unveiled by President Biden last month. Among other things, the plan calls for a new reporting requirement that would require financial institutions to report information on account flows, including earnings from investment and business activities—an idea opposed by the American Bankers Association and several other financial trade associations based on the information provided by the administration to date. The report provided only limited operational details, and reserved “significant flexibility for the [Treasury] Secretary and the IRS to design new reporting requirements.”
The proposed reporting regime “would build from the framework of the Form 1099-INT reports that taxpayers already receive from financial institutions when they earn more than $10 in interest from a bank, brokerage, or other financial institution,” the Treasury report said. Banks would be required to report “additional data on the financial accounts of these existing information returns. Specifically, the annual return would report gross inflows and outflows on all business and personal accounts from financial institutions, including bank, loan, and investment accounts but carve out exceptions for accounts below a low de minimis gross flow threshold.”
The reporting regime—which is assumed to take effect for the 2023 tax year—would also apply to payment settlement entities, foreign financial institutions and crypto asset exchanges and custodians. The Biden administration said it “would concurrently seek out ways to reduce any new burden on financial institutions associated with this information reporting requirement.”
In previous comments on the proposal, ABA emphasized that banks are already subject to robust reporting requirements, and emphasized that a new reporting structure like this raises important privacy concerns and would add additional costs and complexities to an already over-complicated tax reporting structure. ABA advocated instead for more targeted auditing of questionable tax returns to address the tax gap
