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House Democrats have reportedly dumped a massive tax reporting provision that would require financial institutions to report annual gross inflows and outflows in all accounts to the Internal Revenue Service (IRS).
According to the American Bankers Association (ABA), House representatives did not include the contested provision in the latest draft of their 2022 budget resolution.
The announcement follows Senator Joe Manchin (WV-D), a key negotiator on the Democrats’ spending and tax bill, saying on Tuesday that he discussed the proposal with President Joe Biden and he thinks the provision is likely “going to be gone.”
The reporting provision would have required financial institutions to report annual gross inflows and outflows in all business and personal accounts above a de minimis gross flow threshold of $10,000. The proposal, which had been raised from the original $600 de minimis threshold following widespread criticism, was aimed to close the tax gap by catching wealthy tax evaders.
Alongside accounts at financial institutions, the requirement would also apply to accounts “with characteristics similar to financial institution accounts.” This includes third-party payment processors like Amazon Pay or PayPal that would need to report not only gross receipts but also gross purchases, physical cash, as well as payments to and from foreign accounts, and transfer inflows and outflows in all payee accounts above the de minimis threshold.
While many questioned whether the threshold of $10,000 did in fact target the wealthiest of America, the industry was also worried about the robust compliance burden that the new reporting obligations would have meant for them.
If enacted, this proposal would raise “privacy concerns, increase tax preparation costs for individuals and small businesses, and create significant operational challenges, particularly for community banks,” voiced ABA president and CEO Rob Nichols at the time.
He also noted that the proposal represents a shift from previous IRS practice by presuming that all Americans are guilty, instead of going after actual areas of fraud.
The proposal has faced opposition not only from the industry but also from voters. According to a recent poll, two-thirds (67 percent) said they would like to see the provision dropped.
While the provision has faced uproar among many Republican lawmakers from the start, Treasury Secretary Janet Yellen received a new letter last week (21 October) signed by 202 House Republican lawmakers against the plan.
Shortly afterward, Yellen also received a letter signed by 21 Democratic lawmakers expressing their concerns regarding the reporting requirement. The latter letter reportedly led to the decision to abandon the plans.
The provision was a key part of Biden’s Build Back Better agenda, which intended to fund the administration’s robust plan to reform the country’s social, economic, and climate change frameworks.
Although the proposal was dropped from the House bill, the ABA notes that there is still a possibility that lawmakers will bring back the proposal during the legislative process.
