Ahead of a House Ways and Means subcommittee hearing today on shrinking the tax gap, ABA and 10 other financial trade associations cautioned lawmakers about creating new reporting requirements for banks that would “impose cost and complexity that are not justified by the potential, and highly uncertain, benefits.” Such a proposal was included in President Biden’s American Families Plan, which called for financial institutions to report information on account flows, including earnings from investments and business activity.
The groups noted that while only limited details were provided in the recently released “Green Book,” which contains information on the tax changes that the Biden administration is proposing to help fund the budget for the coming fiscal year, “the limited additional information . . . suggests that this new regime could be exceptionally expansive and comprehensive, covering the accounts of most Americans, rather than only the ‘wealthiest,’ as described in the American Families Plan.”
The groups emphasized that financial institutions already have robust reporting responsibilities, and that creating a new reporting structure would be a complex undertaking. They also raised concerns about whether the benefits of the new reporting framework would outweigh the significant compliance burdens, and about privacy and data protection challenges that could arise.
They added that “strengthening IRS funding to facilitate targeted auditing of questionable tax returns is a much more efficient and effective approach” to closing the tax gap. “We support efforts to increase compliance so that all taxpayers meet their responsibilities,” the groups concluded. “But putting financial institutions in the position of reporting more information on their account holders is not the answer.”
