Bank Reporting Proposal

A recent Treasury department proposal would require U.S. banks to comply with a new reporting requirement for most U.S. bank accounts. The threshold for reporting would be set at $600, which mirrors a rule that online sellers must report more than $600 in income to the IRS. The reporting requirement would be in addition to the current requirement that banks report more than $10 in interest on Form 1099-INT, and the reporting would add information to allow banks to use the same form. The bank would essentially be required to report on how much money goes into the account and how much comes out of the account (excluding accounts with a balance lower than $600).

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the proposed bank reporting provision.

Below is a summary of the debate that ensued between the two professors.

Their Votes:







Bloink











Byrnes





Their Reasons:

Bloink: The controversy over this proposed reporting rule is completely unfounded. This new rule doesn't create any new taxes or raise any existing taxes—it merely gives the IRS the tools they need to enforce existing laws that Americans are already supposed to be complying with. It’s really a no-brainer—we’re just looking to close the information gap so that the IRS has the information it needs to determine whether a taxpayer’s reported income is accurate.

Byrnes: We can't ignore the privacy concerns that this proposal creates. This is an unprecedented invasion of individual taxpayers' privacy across the board. We're talking about requiring banks to report on small accounts where the taxpayer has done nothing to indicate that any wrongdoing is taking place—and nearly every single American taxpayer would be swept in.

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Bloink: The point of this proposal is to crack down on wealthy Americans who aren't paying their fair share. The proposal would track total amounts, not individual transactions—according to the proposal itself, banks would report gross inflows and outflows from accounts and give the IRS a breakdown for cash, transactions that involve a foreign account (something already subject to strict reporting requirements), and transfers to and from a financial account that has the same owner. No individual transactions whatsoever will be reported—so the privacy concerns are totally unfounded.

Byrnes: Implementing this type of proposal will increase audits for the middle class and have no impact on tax revenue whatsoever—and it’ll be an administrative nightmare for banks that must comply. Wealthy taxpayers engage in perfectly legal transactions to minimize income tax liability. This proposal isn't targeted toward wealthy tax cheats in any way—it sweeps every single American into the new reporting regime, and that's something we can't overlook.

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Bloink: There’s no basis for saying that this proposal would increase audits for the middle class or represent an invasion of privacy. Individual transactions would remain completely private. This isn’t a way for the government to track spending habits, it’s merely a tool that would allow the government to evaluate whether the amount a taxpayer reports as income is an accurate representation of actual income for the year—so that the IRS can ensure everyone is paying their fair share in taxes.

Byrnes: The IRS can already see what middle-income taxpayers make. Their income is reported on Ws, 1099s and a host of other forms. This law sweeps law-abiding taxpayers in with these supposed “wealthy tax cheats” that we’re trying to catch. The proposal is overly broad, and I don’t see much chance of it passing in its current form.