In a letter to House and Senate lawmakers overseeing the Internal Revenue Service, ABA reiterated its opposition to proposed new tax reporting requirements on banks that would require them to report information on account flows on every account above a de minimis threshold of $600, including earnings from investment and business activity. President Biden’s American Families Plan floated such a measure as a way to shrink the so-called “tax gap.”
ABA flagged several significant consequences for individual and business taxpayers if these requirements were to be enacted. Specifically, the proposal raises significant data privacy and data security concerns, and could lead to increased tax preparation costs for small business owners and sole proprietors, the association said. It could also have a negative effect on the industry’s efforts to promote financial inclusion.
“As some interpret this information reporting proposal effectively to require banks to police and report on the accounts of customers, we are very concerned that it will undermine trust in the banking system and erode the progress we have made reducing the number of unbanked and underbanked in the country,” ABA said.
Banks already report a significant amount of information to the IRS that is not being used, ABA added. The additional reporting requirements would be “massive, unmanageable and of questionable relevance to the calculation of taxable income,” and would create a significant compliance burden for the nation’s community banks.