Financial reporting component of American Families Plan causes concerns

Sept. 29, 2021 — This month, Oregon Pacific Bank (OPB) and other independent banks sent out a consumer alert to inform patrons about an upcoming law that could change the information collected by banks and the Internal Revenue Service (IRS).

Under “Improve Compliance” under U.S. President Joe Biden’s American Families Plan is a section called “Introduce Comprehensive Financial Account Reporting to Improve Tax Compliance.”

“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,” stated the general explanation.

The proposal would create a comprehensive financial account information reporting regime, where financial institutions would report data about accounts to the IRS. 

“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,” the proposal continued.

According to OPB President/CEO Ron Green, “The provision would require all financial institutions to send details of all transactions of all business and personal accounts with balances greater than $600 to the IRS without the accountholder’s consent or knowledge. The idea is to track down those who may be evading taxes and pursue them as a way to make up the federal budget deficit.”

The proposal is concerning to Green — who is a member of the Oregon Bankers Association Board of Directors — and other banks that are part of the Independent Community Bankers of America.

“Banking, credit union, small business and consumer groups are all engaged against this issue for reasons of privacy and data security — not just banks,” he said.

In a letter sent Sept. 13 by dozens of members of Congress in opposition to the proposal, they wrote, “The recent spending proposal to include new tax information reporting requirements for financial institutions would not only impose significant compliance costs on our banks, credit unions and related financial institutions that have served as the backbone of this economy these past 18 months, but also infringe on the privacy of millions of Americans. … Additionally, privacy is one of the primary reasons individuals choose not to open bank accounts. This overreaching proposal, if adopted, would further exacerbate banked/unbanked/underbanked divides.”

Green spoke about the underlying concern for privacy, especially considering the data already collected about consumers through social media, buying practices, web browsing and through a multitude of other ways. 

“I'm equally concerned because the federal government is not necessarily the greatest demonstrator of cybersecurity, when agencies like the IRS and the FDIC ad nauseum have been breached. They're going to take all this data, but how are they going to protect it?” he asked.

In the Sept. 13 opposition letter, U.S. Representatives wrote, “Not only would such an overly comprehensive IRS database require significant resources to build, maintain and protect, but it would make the personal, financial data of millions of Americans vulnerable to attack. Considering the IRS experiences 1.4 billion cyberattacks annually and has experienced multiple data breaches, we should not give this agency additional sensitive data to manage.”

In addition, the country’s banks would be reporting on trillions of transactions every year, which would require additional staffing, and subsequent costs for consumers, as well as an expanded IRS.

Green said the complete plan would grow the IRS 10 percent a year, both in revenue and personnel. This would exacerbate the IRS’ current employee needs, as it has been one of the many organizations impacted by staffing during the pandemic.

In a letter sent Sept. 14, U.S. Secretary of the Treasury Janet Yellen said she is “in enthusiastic support of the financial institution reporting provisions advanced in the president's tax compliance agenda.”

She said much of the information to be gathered is information the financial institutions already know, with the addition of adding a little more detail in reports to the IRS.

Yellen gave information on compliance for people paying their taxes, and that there is a gap of 5 to 50 percent in some instances. Much of the tax gap is at the highest level of income.

“One percent of earners with the highest incomes (are) responsible for nearly 30 percent of unpaid taxes: totaling over $160 billion in tax year 2019. This inequity is closely tied to gaps in information reporting,” Yellen stated.

She said the IRS can crosscheck what taxpayers report on their tax returns with information reported by third parties to ensure taxes are paid. This is because wage and salary income are reported to the IRS on W-2 reports, and tax obligations are automatically withheld, so compliance rates stand at 99 percent. 

Third party information reporting exists for the primary income that accrues to most Americans, including wage, pension and unemployment income. 

“It is clear that when taxpayers know that this information exchange exists, their voluntary compliance rises,” Yellen continued.

Still, the additional reporting makes Green pause.

“We are hearing that Congress believes the financial services industry is misinterpreting the plan regarding banking transaction. There is no argument over the fact that accounts with balances of $600 and greater will be surveilled by the IRS, but they are stating that the details of each individual transaction will not be collected,” Green said. “What they will collect is the total sum of your annual deposits (credits) and withdrawals (debits). This is still very worrisome to me and seems to have the risk of never-ending unintended consequences.”

According to the U.S. Department of the Treasury, the 114-page proposal on The American Families Tax Plan outlines “comprehensive and necessary investments in American children and families.”

In all, the American Families Plan includes $1.8 trillion in investments and tax credits for American families and children over 10 years. It consists of about $1 trillion in investments and $800 billion in tax cuts for American families and workers. The plan will also introduce measures to make sure that the wealthiest Americans pay their share in taxes, while ensuring that no one making $400,000 per year or less will see their taxes go up. The plan also expects to be fully paid for over 15 years through Biden’s American Jobs Plan, and will reduce deficits over the long term.

The American Families Plan can be read in full at While it is being discussed in the U.S. House, it has yet to be finalized.

If people have opinions on any facet of the plan, they are encouraged to reach out to their Congressional Representatives.