Banks would have to give IRS data on accounts with more than $600 under proposal to catch tax cheats

As Congress negotiates the details of the reconciliation bill, a big question is how to pay for all the new spending.

One proposal would give the IRS a better chance to track down tax cheats.

It would require banks to report to the IRS all accounts with a balance of $600 or more or that have $600 or more in transactions. The IRS would then be able to compare the bank account information to the information on tax returns to see if there may be unreported income. The banks would not report the details on individual transactions.

 like whether you went to Wawa or the liquor store, booked a massage or a vacation to Aruba — but instead report the total amounts going into and out of the accounts.  <br>

The Biden Administration said the information would help the IRS find unreported income from rich individuals and businesses and help it close a tax gap of more than $160 billion — taxes owed on earnings that have never been paid.

Indeed, over the past decade, the IRS has been auditing fewer and fewer tax returns.

In 2010, the agency audited 1.11% of returns. In 2019, that number was down to 0.45%.

Treasury Secretary Janet Yellen told a Senate committee that the proposal would add two additional pieces of information onto the 1099-INT, a form that banks already file with the IRS.

“I think it’s important to recognize that we have a tax gap that’s estimated at $7 trillion over the next decade,” she said. “That is taxes that are due and are not being paid to the government that deprive us of the resources we need to do critical investments to make America more productive and competitive.”

Yellen defends IRS rule requiring banks to report all transactions over $600

Treasury Secretary Janet Yellen is defending a Biden administration proposal that would require banks to report data to the Internal Revenue Service on transactions over $600, calling the collection of information “routine,” after taking heat for the idea that is widely seen as an unprecedented invasion of privacy.

During an interview on CNBC’s “Squawk Box” on Tuesday, Yellen was pressed on whether the IRS has the “wherewithal” to collect more information about taxpayers and bank accounts including cash flows, something many Republicans have called invasive.

“Well, of course they do,” Yellen said. “Right now, on every bank account that earns more than $10 a year in interest, the banks report the interest earned to the IRS. That’s part of the information base that includes W2’s and reports on dividends in other income that taxpayers earned. So collection of information is routine.”

Yellen cited the “enormous tax gap” in the US as the reason behind the proposed tax hikes and information collecting, blaming the gap on places where information on income “can be hidden.”  <br>

Treasury Secretary Janet Yellen defended President Biden’s plan to have banks inform the IRS of transactions of $600 or more as simply “routine.”CNBC

“It’s just a few pieces of information about individual bank accounts, nothing at the transaction level that would violate privacy,” the secretary said. 

The collected information would ostensibly help the Treasury Department determine which high-income wealthy individuals may be concealing transactions and income, and “these would be helpful indicators of where it would make sense for auditing to occur,” she added.  <br>

“So, it is not reporting of individual transactions or anything of the like. And it would be a simple thing for banks and other payment providers to provide along with the other information they’re already providing.”

Under the proposal, banks would be required to turn over aggregate inflow and outflow numbers annually to the IRS and would cover bank accounts with at least $600 or at least $600 worth of transactions, according to the Wall Street Journal.