Community bank customers join debate over tax reporting plan
While community bankers continue their economic response to the ongoing pandemic in local communities, a recent proposal to require them to report customers’ account flows to the Internal Revenue Service has suddenly become a major advocacy priority.
To protect customer data and privacy, and to prevent new reporting burdens, community bankers are speaking out against the proposal — and helping their customers weigh in with Congress as well.
The Plan
The Treasury Department’s fiscal 2022 budget request would require banks and other financial institutions to report to the IRS on the deposits and withdrawals of all business and personal accounts and loans.
While the goal of the proposal is to close the “tax gap” between what American taxpayers pay and what they owe, the comprehensive, untargeted nature of the proposal is eliciting broad opposition from financial services, business, and consumer advocates.
Broad Opposition
A recent joint letter to congressional leaders from groups including the Independent Community Bankers of America, Credit Union National Association, International Franchise Association, National Federation of Independent Business, and U.S. Chamber of Commerce lays out key concerns with the proposal.
First, the IRS’s poor record of data security indicates account reporting at this scale could compromise taxpayers’ privacy and raise their risk of identity theft. In this era of big data and cyber criminals, privacy and security should take precedence over mass data collection by an agency investigating its own data leak.
Second, intrusive account reporting to the IRS would undermine the policy goal of reducing the unbanked population. With distrust of institutions and government agencies inhibiting banking relationships — particularly among marginalized communities and those who have fled authoritarian regimes — indiscriminate financial account reporting risks increasing the challenge of reaching the unbanked.
Finally, the Treasury proposal to collect massive amounts of account data unrelated to tax liability would increase taxpayer complexity and confusion — undermining the goal of tax simplicity to promote compliance. Giving taxpayers more forms and data to evaluate — and enlisting financial institutions as agents of the IRS — would create new burdens to taxpaying that detract from the goal of reducing the tax gap.
Instead of randomly gathering heaps of new taxpayer information, the IRS should find less intrusive ways of closing the tax gap, such as making better use of the data it already has.
Consumer Awareness
With opposition surging, community bankers have started informing their customers about the proposal so they are not caught off guard if their bank is required to start reporting their account flows to the IRS.
At banklocally.org/privacy, consumers can learn about the plan and message their members of Congress with their concerns. Community bankers want their customers to know the facts about the proposal and make clear it is coming from Washington, not their local bank.
As this proposal circulates in Washington, community bankers will continue voicing their opposition and informing their customers of its potential impact — all while they continue attending to the economic recovery in their local communities.
Rebeca Romero Rainey is president and CEO of the Independent Community Bankers of America.