Banks and credit unions are angry at a draft legislative proposal that would require financial institutions to report additional accounts receivable information to the Internal Revenue Service, and they are lobbying lawmakers to prevent the passage of the measure as part of a federal budget reconciliation bill.
Ohio industry officials are bristling with the proposal, which they say is unnecessary and could have a huge impact on the financial services industry.
This move will raise privacy concerns, erode customer confidence in the banking system, and cause difficulties for small institutions in particular – such as community banks and credit unions – which are less likely to have the resources available to fundraise. and report required data on accounts receivable, said James Thurston, spokesperson for the Ohio Bankers League.
It is proposed that these new otherwise private banking reporting requirements apply to accounts with at least $ 600 in annual inflows and outflows, or the equivalent in total transactions. That’s practically all bank accounts.
âYou send this information to the IRS, which has experienced several data breaches,â Thurston said. “Do we want to give them even more sensitive information about our customers? I think in our time some sort of mass surveillance program of commercial and consumer bank accounts is inappropriate and excessive.”
The measure is promoted by the administration of President Joe Biden. The Treasury Department recently described its goal in its “Argument for a vigorous attack on the tax gap.”
Administration officials see proposed reporting requirements as a source of revenue in a $ 3.5 trillion budget reconciliation bill. They say it will support IRS auditing activities and help catch tax cheats. The Treasury estimates that these reporting changes could generate $ 460 billion over the next decade.
“This proposal is certainly a cause for concern,” said Emily Leite, advocacy manager for the Ohio League of Credit Unions. âThis is a big change in operations in the way credit unions engage with members and report the information they are required to report. And there aren’t a lot of studies. showing (that) the amount of income generated by catching individuals who don’t pay their full tax obligations would hit that $ 400 billion range. So we’re skeptical there. ”
For credit unions, which already struggle to keep up with the technology infrastructure of their for-profit counterparts, setting up systems to comply with other reporting requirements could be expensive and cumbersome, Leite said.
The proposal has been discussed for months. However, there is a growing sense of urgency among financial industry players who are now struggling with its implementation. It comes as Democratic lawmakers and members of the administration, including Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig, lobby for his death.
“It’s just absurd,” said Robert Palmer, President and CEO of the Ohio Community Bankers Association, noting that banks are already reporting huge volumes of data to the government. “The amount of data they want is astronomical. It’s an intrusion on privacy and overbreadth of the government.”
The Biden administration describes the effort as a way to prevent the wealthy from tax evasion, but it doesn’t quite fit that $ 600 benchmark under discussion, Palmer said.
“In our opinion, this is just a smokescreen,” he said. “It’s an attack on small businesses and Central America.”
The aspect of confidentiality is a major concern even for large banks which could turn to disclosing additional customer information with more ease.
That includes Cleveland’s tech expert KeyCorp and its KeyBank unit, which has around $ 181 billion in assets.
“We are aware of this proposal and will continue to monitor any development as Congress deliberates on the reconciliation bill,” Key spokesperson Matthew Pitts said in a statement. “Protecting our customers’ information is fundamental to KeyBank’s mission to provide the best possible banking services.”
Officials say these privacy concerns could drive customers away from the banking system.
This is something bankers including Tom Fraser, president of the Ohio Bankers League and CEO of First Mutual Holding Co., the parent company of First Federal Lakewood community mutual bank, say they are most concerned about. terms of possible downstream impacts.
“We are concerned that the perception of additional reports may have the unintended consequence of keeping those who are unbanked and who live in the cash economy will stay there,” he said. “As the industry works hard to rebuild the trust factor, this could create another hurdle.”
Paul Merski, Executive Vice President of the Congress Relations and Strategy Group for Independent Community Bankers of America, said bankers have long argued that the IRS has the proper resources to collect taxes.
âBut this vast net of investigating everyone’s financial transactions is really overkill for what they need to do,â Merski said. “They are already collecting billions of pieces of information, and adding more hay to the haystack is not going to help them. The administration has not explained how it would help them attack the bigger earners.”
Banks are “forced to be police officers for the IRS,” and that is not their goal, he said.
Some advocates of reporting requirements say the concerns raised by the industry are overblown. This includes groups such as the left Center for American Progress and Urban-Brookings Center for Tax Policy, both of which separately suggest that the privacy concerns are unfounded.
They also say that the idea that reporting will turn away privacy-worried customers is pure guesswork.
What ultimately happens to this proposal remains to be seen. As for how these improved reporting measures would be implemented, the devil is in the details that have yet to be clarified.
But this uncertainty contributes to industry concerns.
The measure seems to have a good chance of being adopted in the House. The real battleground will apparently be in the Senate.
U.S. Democratic Senator from Ohio Sherrod Brown, chairman of the Senate Committee on Banking, Housing and Urban Affairs, is generally in favor of these additional reporting requirements.
“Senator Brown supports strengthening our tools to crack down on wealthy tax evaders who use every trick to avoid paying their fair share and push the bill on Ohio families,” according to a statement from Brown’s office. âThe Senate continues to debate the specifics of information requirements that will best give the IRS the tools it needs to fight tax evasion by the rich and big business.