Bad news for American workers and small businesses: A nefarious rule billed as “improving tax enforcement” will give the Internal Revenue Service (IRS) more access to our private bank account information. 

Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig are resurrecting the American Families Tax Plan Compliance Agenda, specifically honing in on a measure to direct the IRS to track annual inflow and outflow information from bank accounts for non-cash transactions exceeding $600. What’s their goal? To create a “comprehensive information reporting regime” that makes “tax administration more equitable.”

“The President’s proposal would help make tax administration more equitable by subjecting financial flows, especially those that accrue disproportionately to those at the top of the income distribution, to third-party reporting as well,“ the May 2021 document reads.

The Center for American Progress (CAP) says the Biden administration’s plan to “improve tax enforcement” is to “fund IRS enforcement of high-income individuals and corporations.”

Would this rule be more equitable and discourage tax evasion? The evidence points to the contrary.

The Proposed IRS Rule Deconstructed

Under these proposed guidelines all bank, loan, and investment accounts would be directed to report gross inflows and outflows to the IRS — including PayPal, settlement companies, and crypto-asset exchanges transactions:

Other accounts that are similarly situated to financial institution accounts would also be covered under this new reporting regime — for example, payment settlement entities would also be required to report gross receipts and gross purchases. The reporting regime would also cover foreign financial institutions and crypto-asset exchanges and custodians.

“It is important to implement comprehensive information reporting regimes, as partial reforms can simply shift tax evasion into other areas,” the document added. “The IRS will be able to deploy this new information to better target enforcement activities, increasing scrutiny of wealthy evaders and decreasing the likelihood that fully compliant taxpayers will be subject to costly audits. As a result, voluntary compliance will rise through deterrence as would-be tax evaders realize that the IRS has an additional lens into previously unreported income streams.”

Especially hard hit will be S-corporation (S-corp) filers because they apparently aren’t paying their “fair share”:

Current reporting of gross receipts exists for only certain types of revenue, and there is no information reporting on deductible expenses. This is why the tax gap for partnership, S-corporation, and proprietorship income is estimated at around $200 billion annually with the net misreporting percentage for certain income categories exceeding 50%. Third-party information reporting is already provided on primary income streams for the vast majority of Americans, such as wage, pension, and unemployment income. The President’s proposal would help make tax administration more equitable by subjecting financial flows, especially those that accrue disproportionately to those at the top of the income distribution, to third-party reporting as well.

Equitable Financial Pain for All Bank Account Holders

The “comprehensive information reporting regime,” in the Biden administration’s words, would “raise $460 billion” across ten years. 

The revenue estimates assume that the bank reporting proposal will become effective for tax year 2023, building in implementation time for the IRS and for financial institutions. The Administration would concurrently seek out ways to reduce any new burden on financial institutions associated with this information reporting requirement. This additional information reporting would also enhance the effectiveness of enforcement measures, as it will provide a proxy measure for a taxpayer’s potential income position, and suspect account flows could help the IRS better target its enforcement activities. This would benefit compliant taxpayers, whose risk of costly no-fault audits would decrease as the IRS better targets enforcement actions. According to the Office of Tax Analysis, the increase in compliance that would result from this new reporting regime is estimated to raise $460 billion over the next decade.

Wall Street Journal, however, noted that figure will give Democrats the green light to expand the social safety set and pursue aggressive climate-change policies.

Mounting Opposition Building

The American Banking Association wrote a letter September 7th expressing their opposition to the proposal, writing, “The proposal would create a significant burden on small businesses and community banks and add no discernible value to tax enforcement. We understand that the proposal is under consideration and we are concerned that members are unaware of the important policy and operational issues associated with this proposal.”

The ABA added they already comply with the IRS, adding:

Banks already report a tremendous amount of data to the IRS, much of which the IRS, as stated in public testimony, does not have the capacity to utilize. Under the new proposal, significant additional information, such as payments on loans or transfers between a taxpayer’s various bank accounts, would be captured and reported. The amount of information submitted would be massive, unmanageable, and of questionable relevance to the calculation of taxable income. The IRS is a constant target of cyber criminals and has recently suffered significant data breaches. It is impractical and ill-advised for the government to put this significant amount of additional sensitive financial data at risk, especially when the IRS does not have the capability to effectively utilize or protect that data.

A September 13th letter, Congressional Republicans lambasted the proposal:

“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,” the letter read. “Specifically, such a proposal would require financial institutions and other financial services providers report information about the outflows and inflows on accounts over $600 to the IRS every year.”

The letter emphasized, “However, financial institutions currently report a tremendous amount of data to the IRS, and no evidence has shown that the proposed requirements would substantially aid the IRS’s efforts to close the tax gap beyond the information already at the IRS’s disposal.”

IRS Will Gain Greater Access to Private Bank Account Info

Adding insult to injury, the IRS will administer a new domestic surveillance program to carry out the rule change. Reason Magazine described it in the following manner:

The new domestic surveillance program, which requires congressional approval, is one prong of a tripartite strategy for transforming the entire global financial system into a harmonious, haven-free collection funnel to the IRS. The second part, which has taken up the bulk of Biden’s multilateral diplomacy thus far, is getting the industrialized world to agree on a global minimum corporate tax of 15 percent, while setting up a system to prevent multinational companies from registering their profits in the lowest-tax jurisdictions.

The ABA added the required data monitoring would further burden small community banks:

While all banks would be impacted, the massive and expensive effort to provide this data will especially burden small community banks. Designing a system to track and report inflows and outflows on all bank products is complicated and de minimis thresholds will do little to reduce this burden. Every financial institution will need to devote the resources needed to screen every single account to ascertain whether the gross activity falls above or below a threshold, even if only a portion of those accounts end up being reportable.


How can taxpayers entrust the IRS with their personal banking information if the agency is susceptible to cyberattacks and data breaches, not to mention partisan targeting of some citizens for added scrutiny? It would be dangerous to cede more power to a governmental agency prone to rogue behavior.