A proposed rule requiring details of most financial accounts is designed to find taxes to help pay for the $3.5 trillion federal reconciliation bill.
Artice by Betsy Price in TownSquareLive
Proposed U.S. rule would force reporting of all accounts of $600 or more
A federal proposal that would require banks, credit unions and apps like Venmo and Paypal to report any account with more than $600 in transactions in a year to the IRS is drawing fire from financial institutions.
The proposal, originally part of the $1 trillion federal infrastructure bill, is designed to find money to help pay for the $3.5 trillion federal budget reconciliation, credit union officials say.
Doug Troskey, CEO of Community Powered Federal Credit Union in Bear, said that if the rule is implemented, it will mean the vast majority of accounts at his credit union must be reported. Only a small portion have less than $600 a year in transactions, he said.
Chaz Rzewnicki, president of the Dover Federal Credit Union, called the plan “absolute madness and a gross overreach.”
“My personal opinion is it really kind of violates the consumer’s personal privacy,” Rzewnicki said. “That’s not your business, how much money I have going into my account and out of my account.”
Both said that if the plan is approved and put into place during budget reconciliations now going on in Washington, D.C., it will mean credit unions are likely to have to pay tens of thousands for new processing software that does not now exist, as well as people to monitor it.
That means less money left in the local community to provides loans or pay customers, the CEOs said.
They also worry about the federal government’s ability to keep the information private.
Spokespeople for WSFS Bank, PNC Bank and Bank of America all declined this week to comment on the topic. But nationally, banks and credit unions are fighting the proposed rule.
It is designed to close the tax gap, said Brad Thaler, vice president of legislative affairs for the National Association of Credit Unions in Washington, D.C.
“The tax gap is, you know, in essence, money that’s out there that’s being unreported or underreported,” he said.
That can include money made from illegal means, as well as cash not reported by those who don’t list all their tips, people doing gig work for cash, side jobs paid in cash, people who sell crafts or products from home and other means generally considered part of the underground economy.
The financial reports would allow the IRS to compare how much cash came through a person’s accounts to how much was reported each year on income tax forms, Thaler said.
The current proposal does not include any enforcement measures, but it would allow the IRS to see if someone has $40,000 going through their accounts in a year but only reported $30,000 of income.
“The concept behind this is to gather more information with the idea that if the public or consumers or individuals knew the government was gathering information, they’re more likely to report it andpay taxes,” Thaler said.
Thaler said the Biden administration estimates that move could help the country net $200 billion to $350 billion a year in extra income taxes.
“What we’ve heard from people who have concerns about this is that’s very uncertain,” he said.
U.S. Sen. Mike Crapo, R-Idaho, the ranking member of the Senate Finance Committee, filed an amendment that would have thrown out the proposed rule when the infrastructure deal was under discussion. Republicans voted for it. Democrats did not, and it failed.
Because the rule now says financial institutions must make reports, those businesses affected will include more than traditional financial institutions such as banks and credit unions. It also will include popular smartphone apps such as Venmo and Paypal, and possibly even Bitcoin, Thaler said.
They are financial institutions, but do not face the same kind of regulations and requirements, including currency, foreign transaction and suspicious activity reports sent to the federal government, he said.
Having to organize more information, which credit unions don’t now track, puts an unfair regulatory burden on credit unions and small community banks, which have a smaller margin and fewer resources than larger or multistate banks, the credit union officers say.
Rzewnicki said new software will have to be able to talk to about 100 different data processing programs to work, which means huge development resources.
“I’m not sure that it puts the U.S. in a great position at a time when we’re talking about putting cryptocurrency management in place and all kinds of other things,” Rzewnicki said. “I think this will lead to the U.S. falling further behind than we are on the global stage.”
He also fears that people will migrate to places where there is no reporting.
Troskey said he worries about what the government does with that information and how it will be secured.
“You know, there’s been a lot of breaches of data.” he said. “If the government houses all that data, how are they going to keep it secure? Is there potential for someone to leak that information or to hack that information? You know, that’s a big concern for me.”
Credit unions and banks can keep the information more secure, he said.
Thaler said credit unions support government attempts to help close the tax gap.
“It’s a noble cause,” he said. “But to have entities that are already doing a lot, asking them to do more when there may be better ways to generate more revenue, we think it’s kind of a bridge too far.”
