I want to thank all of you for all you did for the American people during the PPP – a program of that magnitude had never been done before. You dealt with constant rule changes, lack of information and everything else that made your life hectic for months. Because of you, a massive number of businesses both small and large were able to retain their employees. I can’t think of a better way to say thank you than ridiculous IRS reporting requirements and a 918-page small business data proposal from the CFPB.
Last week we were blessed with both of the above-mentioned items. One has a lot more urgency than the other, but both equally important: The proposed reporting requirements from the IRS, and the CFPB’s long-awaited proposal to implement Section 1071 of the Dodd-Frank Act, which requires the collection and reporting of credit application data for small businesses.
I want to spend the remainder of this article going into more detail on both and make sure you are aware of the implications of the proposals and how they will directly impact you.
As we sit here today, the U.S. House is getting ready to start the committee process to determine what proposals are included in the $3.5 trillion infrastructure bill. The IRS-reporting proposal has been assigned to the House Ways and Means Committee. The Committee on Ways and Means is the oldest committee in Congress and is the chief tax-writing committee in the House of Representatives.
The committee process for this infrastructure bill plays a vital role in the process of moving this bill forward. Several different committees will go through the process of passing all the key provisions of what will ultimately make up the entire $3.5 trillion bill. In a lot of cases, once a complete bill makes it to the floor, you have opportunities to offer amendments. From what we have heard, this bill won’t be like other bills because House leadership won’t bring the bill to the floor until it knows it has the votes for passage.
It looks like the only way to defeat any aspect of this bill is in committee. The OBA, ABA, ICBA and many other trade associations have been hammering members of the committee trying to make our case as to why this is a bad proposal.
What’s in the proposal
The proposal would require all financial institutions to report all inflow and outflow transactions on ANY account that has a minimum account balance of $600.
How did we get here?
The public reason for this is proposal is simple: with a $3.5 trillion price tag for the “social infrastructure” bill, you clearly have to come up with ways to pay for it.
IRS chief Charles Rettig believes more rigorous disclosures from the nation’s banks would help fix the tax gap and recoup billions in owned revenues. Rettig says years of budget cuts have left the agency unable to prosecute those who have failed to pay their fair share of federal taxes.
Here is where the rubber hits the road in my opinion : Chief Rettig was quoted in an interview with CNBC as saying, “President Biden’s American Families Plan, and the bipartisan infrastructure deal, would result in significant volumes of new data regarding financial transactions, and the new data will provide the IRS with a lens into otherwise opaque sources of income with historically lower levels of reporting accuracy.”
The IRS reports for every 1% improvement in tax compliance, federal annual revenues are projected to increase by about $30 billion per year.
What does this mean for you?
First, it means you are going to have to do more reporting than you ever imagined in your worst nightmare.
Taxpayers will have to receive 1099s for every account they hold containing funds-flow information that isn’t even relevant to their tax liability.
How do you handle jointly held accounts? The IRS already collects more data than it can process, as one individual from the Tax Policy Center stated, “In practice, the IRS’ task would be daunting and, in fact, it would bury the agency in a sea of unproductive information.”
There would be a significant cost increase to your bank – putting systems in place to gather the required information and properly reporting it to the IRS would simply be too much for some community banks.
We haven’t even begun to discuss the privacy invasion on your customers.
Right now, so many folks don’t trust the government or the IRS, how are they going to feel about you providing the IRS all their banking transactions?
There is nothing good that is going to come of this, and I hope that those folks in Washington realize what they are considering.