U.S. Senator Todd Young (R-Ind.), and all Republican members on the Senate finance and banking committees, sent a letter urging Senate Majority Leader Chuck Schumer (D-N.Y.) to abandon the Biden-Harris 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 for any account with at least $600 of activity annually.
“This proposal represents a radical departure from existing reporting requirements associated with national security and actual taxable events,” the Senators wrote. “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.”
Senator Young was joined by Senators John Thune (R-S.D.), Mike Crapo (R-Idaho), Pat Toomey (R-Pa.), John Barrasso (R-Wyo.), Marsha Blackburn (R-Tenn.), John Boozman (R-Ark.), Richard Burr (R-N.C.), Bill Cassidy (R-La.), John Cornyn (R-Texas), Kevin Cramer (R-N.D.), Steve Daines (R-Mont.), Chuck Grassley (R-Iowa), Bill Hagerty (R-Tenn.), John Hoeven (R- N.D.), John Kennedy (R-La.), James Lankford (R-Okla.), Cynthia Lummis (R-Wyo.), Jerry Moran (R-Kan.), Rob Portman (R-Ohio), Michael Rounds (R-S.D.), Ben Sasse (R-Neb.), Tim Scott (R-S.C.), Richard Shelby (R-Ala.), and Thom Tillis (R-N.C.).
What They Are Saying:
“We are thankful for Senator Young’s strong opposition to the proposed invasive IRS reporting requirements. We are concerned about the enormous regulatory burden and cost this would place on credit unions, but more than that we believe that this program would be a severe invasion of the financial privacy of Indiana’s 2.7 million credit union members,” said John McKenzie, President of Indiana Credit Union League in Indianapolis, Indiana.
“Our members trust us to protect their financial privacy. The push to require us to share a much deeper level of their confidential, private financial information with the IRS would jeopardize that trust and put their information at risk. We appreciate Senator Young’s efforts to stop these requirements from becoming law,” said David Abernathy, President & CEO of Via Credit Union in Marion, Indiana.
“The Indiana banking community agrees with the insights expressed by Sen. Young and colleagues in their letter. If banks and other financial institutions are forced to report their customers’ account information to the IRS, the result would be a disastrous breach of consumer privacy, an erosion of trust in financial institutions, and a serious compromise to the safety of private customer information. Additionally, it would add excessive and needless administrative expense to the business of banking. As the letter aptly summarized, ‘It is a misguided and privacy-invasive proposal,’” said Amber R. Van Til, President & CEO of the Indiana Bankers Association in Indianapolis, Indiana.
“As a community bank leader, I support the letter presented by Sen. Thune, Sen. Young and colleagues identifying the shortcomings of the proposed IRS reporting requirements for financial institutions. My main concerns relate to protection and privacy of customer information, the unintended consequences of pushing people out of the banking system, and the additional reporting burden and cost placed on banks. The negative impacts of this proposed legislation greatly outweighs any potential positive outcomes,” said Michael Zahn, President & CEO of First Federal Savings Bank in Huntington, Indiana.
“The IRS reporting proposal is a significant privacy invasion for our customers and places financial institutions in the middle of government enforcement agencies and our customers. The cost to banks and customers both financially and in loss of privacy are extremely high when compared to the insignificant benefit to the government in collecting this mountain of private information,” said Todd Etzler, Executive Vice President and General Counsel of Horizon Bank in Michigan City, Indiana.
“Mandating new, extensive bank account reporting to the IRS would violate the privacy of First Federal Savings Bank’s customers, discourage banking relations, and overload the IRS with more personal data about our customers than it can possibly process or defend from a data breach. This is an unprecedented invasion of privacy. As a community bank, we have a duty to protect our customers’ and their confidentiality and our region’s disapproval of this proposal is evident,”said Michael H. Head, President & CEO of First Federal Savings Bank in Evansville, Indiana.
“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. 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,” said Rebeca Romero Rainey, President & CEO of the Independent Community Bankers of America.
“This proposal is deeply concerning for America’s credit unions and their 120 million members. 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,” said Jim Nussle, President & CEO of the Credit Union National Association.
View the full text of the letter here and below:
Senator Charles E. Schumer
Senate Majority Leader
United States Senate
Washington, D.C. 20510
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.