Biden's tax plan could give IRS more access to your bank account

Biden's IRS proposal could generate $463B in new funding, White House estimates

The Biden administration is aiming to bolster the Internal Revenue Service by adding bank account reporting requirements to Democrats' massive tax and spending bill, prompting a swift backlash from Republicans who have warned it infringes on customers' privacy.

Under the proposal, banks and other financial institutions would be required to annually report customers' account inflows and outflows of $600 or more to the IRS. The White House has estimated the policy, which would apply to bank, loan and investment accounts, could generate about $463 billion in additional revenue over the next decade.

In a memo to congressional Democrats, the administration defended the plan, saying it requires banks and financial institutions to provide a "little bit of high-level information" to the IRS on account flows in order to give the agency more information about wealthy Americans' earnings from investments and business activity. 


It caveated that banks will not have to report individual transactions to the IRS, but rather "basic, high-level information on account inflows and outflows."

"Imagine a taxpayer who reports $10,000 of income; but has $1 million of flows in and out of their bank account," the administration said in a memo to congressional Democrats this week. "Having this summary information will help flag for the IRS when high-income people under-report their income (and under-pay their tax obligations)."

But a draft of proposed tax increased released by House Democrats on Monday allocates an extra $78 billion in funding for enforcement measures over the next decade, but notably does not include any new bank reporting requirements that the White House argues is necessary to crack down on tax evasion by high-earners and corporations. 

Treasury Secretary Janet Yellen is urging Rep. Richard Neal, the chairman of the tax-writing House Ways and Means Committee, to include the full proposal to beef up IRS enforcement as it crafts the $3.5 trillion spending package. She argued that enhanced powers, along with additional resources, are required to shrink the tax gap – the shortfall between what’s owed and what’s paid.


"As you consider specific policy choices in designing an information reporting regime, it is important to ensure that the reporting regime is sufficiently comprehensive, so that tax evaders are not able to structure financial accounts to avoid it," Yellen wrote. "Any suggestion that instead this reporting regime will be used to target enforcement efforts on ordinary Americans is wholly misguided."

Critics of the proposal have argued that giving the IRS more power to monitor taxpayer financial information could lead to privacy violations and also unwarranted audits of individuals for political purposes. Republican lawmakers have also said the burden of increased audits could fall on low-income Americans and small businesses.

The White House has insisted the proposal comes with an "explicit guardrail" to keep the IRS from increasing rate audits on individuals earning less than $400,000 a year.

"Fundamentally, this proposal is about ensuring that those at the top pay what they owe," the White House said. "The audit rate guardrails are key to the proposal and will protect working people."


In fiscal 2019, the IRS audited just 0.45% of individual tax returns, according to a recent Treasury Department report, or roughly 1 out of every 225 individual returns. That figure is down from 0.59% in 2018 and 1.11% in 2010. The data shows that out of more than 199 million tax returns in 2019, the IRS only examined 771,095 returns. That's a decline of 44% from fiscal year 2015.

In all, the IRS collected about $57.5 billion in enforcement revenue in fiscal 2019, which ended on Sept. 30, 2019. That's below the $59.4 billion it raked in during fiscal year 2018, according to Treasury figures.

The decline in audits is largely due to dwindling funding and enforcement staff: The IRS has 20,000 fewer staff than it did in 2010, and its budget is roughly $11.4 billion – 20% less than it was in 2010, when adjusted for inflation, according to the Congressional Budget Office.

About $1 trillion in federal taxes may be going unpaid each year because of errors, fraud and a lack of resources to adequately enforce collections, IRS Commissioner Chuck Rettig previously said.