WASHINGTON – U.S. Senators Bill Cassidy, M.D. (R-LA), Mike Crapo (R-ID), John Thune (R-SD), Pat Toomey (R-PA) and fellow Senate Republicans, including every Republican member of the Senate Committee on Finance and Senate Committee on Banking, Housing, and Urban Affairs, urged Senate Majority Leader Chuck Schumer (D-NY) to abandon the Biden Administration’s unprecedented proposal to expand the reporting of the private, confidential financial data of law-abiding Americans from financial institutions to the Internal Revenue Service (IRS). The Administration’s proposal would force financial institutions to report customer information such as gross inflow and outflow information and transaction information directly to the IRS.
“This proposal represents a radical departure from existing reporting requirements associated with national security and actual taxable events,” wrote the senators. “Placing more requirements on financial institutions would not only adversely affect these institutions and their customers – who ultimately pay the price for compliance costs – but it would also inundate the IRS with layers of new paperwork and taxpayer data that is either redundant or irrelevant to improving federal tax compliance, as account inflows and outflows are not taxable events. Simply flooding the IRS with more data and burdening taxpayers, financial institutions, and already overwhelmed IRS service centers with more paperwork is of questionable value, especially when the IRS does not effectively use data already in its possession.”
“We appreciate the letter from Senator Thune and his colleagues, and it highlights many of the concerns we are hearing about this misguided proposal from bank customers,” said Rob Nichols, president and CEO of the American Bankers Association. “This plan would force banks to develop a costly new system to provide private financial data on almost every taxpayer to the IRS, not just those suspected of cheating on their taxes. It’s not clear the IRS could even process and protect all that information. Perhaps most troubling of all, it risks driving people away from the banking system and all the economic benefits that come from having a bank account. We urge Congress to reject this bad idea.”
“An ICBA poll conducted by Morning Consult found 67% of voters oppose requiring financial institutions to report customer account information to the IRS, while consumers are speaking with more than 400,000 messages to their members Congress in opposition,” said Rebeca Romero Rainey, president and CEO of the Independent Community Bankers of America. “The IRS reporting proposal is an invasion of consumers’ privacy, a violation of Americans’ due process, a data security risk amid the agency’s ongoing tax return leak investigation, and a threat to bipartisan efforts to reduce the unbanked population by driving more Americans out of the banking system and toward predatory lenders.”
“This proposal is deeply concerning for America’s credit unions and their 120 million members,” said Jim Nussle, president and CEO of the Credit Union National Association. “Not only would the regulatory burden create an outsized impact on credit unions serving rural communities, but it raises serious privacy concerns for every consumer in the country. From the massive 2014 data breach at the Office of Personnel Management to this year’s IRS leak of federal tax returns, the federal government’s checkered history of warehousing personal data underscores the dangerous impracticality of this policy proposal.”
The letter was also signed by Senators John Barrasso (R-WY), Marsha Blackburn (R-TN), John Boozman (R-AR), Richard Burr (R-NC), John Cornyn (R-TX), Kevin Cramer (R-ND), Steve Daines (R-MT), Chuck Grassley (R-IA), Bill Hagerty (R-TN), John Hoeven (R-ND), John Kennedy (R-LA), James Lankford (R-OK), Cynthia Lummis (R-WY), Jerry Moran (R-KS), Rob Portman (R-OH), Michael Rounds (R-SD), Ben Sasse (R-NE), Tim Scott (R-SC), Richard Shelby (R-AL), Thom Tillis (R-NC) and Todd Young (R-IN).
Read the full letter here or below.
Dear Leader Schumer:
Congress is currently considering a variety of proposals to address the tax gap and improve federal tax compliance. The tax gap – the difference between taxes owed and paid – has been a stubborn problem for decades. While we should pursue bipartisan measures to reduce the tax gap and better enforce our tax laws, we write to highlight our concern about the Biden administration’s proposal to expand the reporting of private, confidential taxpayer information from financial institutions to the Internal Revenue Service (IRS).
Though the details of the legislation being negotiated by congressional Democrats remain unclear because Republicans continue to be boxed out of the process, one of the misguided proposals embedded within President Biden’s American Families Plan would violate law-abiding taxpayers’ privacy and place onerous new reporting requirements on financial institutions. Specifically, this proposal would require banks, credit unions, and other financial institutions to report financial account information to the IRS for nearly all of their customers – including gross inflow and outflow information, and possibly transaction information.
This troubling proposal would create serious privacy concerns for American taxpayers. In addition, it would be unreasonably burdensome for financial institutions across the nation, particularly those community financial institutions serving families and small businesses across America.
Contrary to claims that this proposal would only provide a “distinct benefit” to already compliant taxpayers, this proposal would compromise the privacy of an inordinate number of law-abiding Americans whose confidential financial information would be sent by their financial institution directly to the IRS. As you know, the IRS faces approximately 1.4 billion attempted cyberattacks each year, and just a few months ago the private returns of thousands of taxpayers were obtained and leaked to the public by ProPublica – a serious information security lapse about which the agency has still not provided any useful information to Congress.
Given the IRS’ troubling record of failing to protect certain confidential taxpayer information and abusing its authority, specifically the targeting of conservative political groups, this proposal would undermine trust in the financial system and, in turn, reduce financial inclusion. The most recent FDIC survey shows that the second most common reason unbanked households lack a bank account is that they do not trust banks. Approximately one quarter of all taxpayers do not trust the IRS to protect their tax account records or to fairly enforce the tax laws. Giving the IRS access to additional confidential financial information would only compound existing mistrust and drive more people out of the financial system and away from access to regulated financial products.
This proposal also represents a radical departure from existing reporting requirements associated with national security and actual taxable events. Placing more requirements on financial institutions would not only adversely affect these institutions and their customers – who ultimately pay the price for compliance costs– but it would also inundate the IRS with layers of new paperwork and taxpayer data that is either redundant or irrelevant to improving federal tax compliance, as account inflows and outflows are not taxable events. Simply flooding the IRS with more data and burdening taxpayers, financial institutions, and already overwhelmed IRS service centers with more paperwork is of questionable value, especially when the IRS does not effectively use data already in its possession.
Furthermore, although the Biden administration has claimed the financial reporting proposal would not lead to increases in audit rates for those with income under $400,000, it has not provided any plausible reason to believe that assertion. On the contrary, past experience indicates the brunt of costs imposed on compliant taxpayers would fall on low- and middle-income households and businesses with incomes well below $400,000, not on “billionaires” and “tax cheats,” as the administration’s political messaging suggests.
For these reasons, we reiterate our strong opposition to the inclusion of these new IRS reporting requirements on financial institutions. It is a misguided and privacy-invasive proposal, and its consideration is nothing more than an attempt to find a way to pay for a fraction of this irresponsible spending bill currently under consideration.