As telegraphed last week, Democrats on Capitol Hill, facing loud criticism, have today upped the proposed new IRS reporting threshold on bank accounts from $600 in combined annual transactions to $10,000, according to the Washington Post.
Negotiators on the controversial proposal, which is being tucked into the multi-trillion-dollar social spending bill that Democrats will attempt to push through with a party-line majority, also say that wage income will be exempted, though how financial institutions (which are the entities being tasked with notifying the IRS) make that determination is unclear, as is much about the whole application of the American Families Plan Tax Compliance Agenda. "Exactly which accounts should be subject to the new rules has been the subject of a fierce debate," the Post notes. Federal benefits such as Social Security checks will also reportedly be exempted.
President Joe Biden, Treasury Secretary Janet Yellen, House Speaker Nancy Pelosi (D–Calif.), Sen. Elizabeth Warren (D–Mass.), and far too many overcredulous news organizations have portrayed this expansion of federal financial surveillance as (in the Post's lead-paragraph description) a "proposal to crack down on wealthy tax cheats."
Sen. Ron Wyden (D–Oregon), in a prepared statement for today's threshold-change, asserted that "the main reason Republicans have latched on to this issue as the one to lie about every day is because they know their tax agenda is a political loser," and that "the American people overwhelmingly want to ensure mega-corporations and billionaires pay their fair share, so Republicans have largely given up on their tired-trickle down arguments."
But the people most likely to have their transactions newly calculated for the IRS each year are not millionaires who scatter their holdings across 100 different $10,000 accounts, but rather freelancers, small business owners, immigrants, and anyone paid/gifted banked cash exceeding four months' worth of minimum wage work in New York. If I paid my 13-year-old $100 a week to babysit my 6-year-old, and she turned around and spent all that money at Brandy Melville, her bank may be obliged to report her deposit/withdrawal sums at the end of the year.
I say "may" because, again, the details of this are being hashed out behind closed doors.
The Biden administration has expressed exasperation at the pushback—"This is about making sure the top 1 percent can't evade $160 billion per year in taxes," Treasury Department spokeswoman Alexandra LaManna complained to the New York Times last week—but a look at Treasury's own wishlist-verbiage makes it obvious that this measure is designed to boost compliance among the lower 99 percent:
Requiring comprehensive information reporting on the inflows and outflows of financial accounts will increase the visibility of gross receipts and deductible expenses to the IRS. Increased visibility of business income will enhance the effectiveness of IRS enforcement measures and encourage voluntary compliance.
This proposal would create a comprehensive financial account information reporting regime. Financial institutions would report data on financial accounts in an information return. The annual return will report gross inflows and outflows with a breakdown for physical cash, transactions with a foreign account, and transfers to and from another account with the same owner. This requirement would apply to all business and personal accounts from financial institutions, including bank, loan, and investment accounts, with the exception of accounts below a low de minimis gross flow threshold of $600 or fair market value of $600.
Other accounts with characteristics similar to financial institution accounts will be covered under this information reporting regime. In particular, payment settlement entities would collect Taxpayer Identification Numbers (TINs) and file a revised Form 1099-K expanded to all payee accounts (subject to the same de minimis threshold), reporting not only gross receipts but also gross purchases, physical cash, as well as payments to and from foreign accounts, and transfer inflows and outflows.
Similar reporting requirements would apply to crypto asset exchanges and custodians. Separately, reporting requirements would apply in cases in which taxpayers buy crypto assets from one broker and then transfer the crypto assets to another broker, and businesses that receive crypto assets in transactions with a fair market value of more than $10,000 would have to report such transactions.
Emphases mine. Raise your hand if you qualify for the dragnet.
As the Wall Street Journal editorial board rightly worries, banks (as well as all other financial institutions) "would bear the cost of reporting each of more than 124 million U.S. accounts, which might require new software and additional staff. Customers could count on these costs showing up in higher user fees." When the IRS deputized foreign financial institutions to cough up information about their U.S. clients abroad a decade ago, millions of Americans were kicked out of their accounts.
The IRS itself acknowledges that "the United States enjoys a relatively high and stable voluntary tax compliance rate." But in order to maintain the laughable fiction that "the cost of the Build Back Better Agenda is $0," our already-intrusive, Fourth Amendment-busting federal access into personal financial affairs has to be vastly expanded into a—their words!—"comprehensive financial account information reporting regime." One that no doubt will have less-than-ironclad data security.
Those who value their financial privacy, and are not rich enough to afford the kinds of professional tax-minimization services this enforcement measure will fail to curb, are advised to keep their transactions in cash. If the Biden administration gets its way, they might not have any choice.