House Ways and Means Chairman Richard Neal said he and other Democratic leaders are planning to set the threshold higher than $600 proposed by President Biden that would require banks and other financial institutions to annually report customers' account inflows and outflows to the IRS.
"We’ve reached an agreement to not have the $600," Neal told reporters last week.
A Democratic aide told Bloomberg News the minimum could be raised to $10,000, but cautioned that discussions are still fluid and subject to change.
The White House had previously estimated the policy – one of many tax policies intended to fund a sweeping $3.5 trillion family and climate plan – could generate about $463 billion in additional revenue over the next decade.
Still, the proposal has faced swift backlash from consumer advocates and banking groups, which have warned that it would give the IRS an enormous amount of new information that it would have to learn how to manage and use. Banks say the plan would increase compliance costs and add to the already existing burden the industry faces in turning over information to the government.
In a letter addressed to House Speaker Nancy Pelosi and Minority Leader Kevin McCarthy, more than 40 banks urged lawmakers to vote against such a proposal, warning it could create a "tremendous liability" for all involved by requiring the collection of financial information for the majority of Americans "without proper explanation of how the IRS will store, protect, and use this enormous trove of personal financial information."
"This proposal would create significant operational and reputational challenges for financial institutions, increase tax preparation costs for individuals and small businesses, and create serious financial privacy concerns," they wrote. "We urge members to oppose any efforts to advance this ill-advised new reporting regime."
Banks already report millions of transactions a day to the Financial Crimes Enforcement Network for any transaction that exceeds $10,000 – part of banks' anti-money laundering requirements. House Democrats initially excluded the policy from its draft version of the tax bill because lawmakers were unable to reach a deal on it.
"You want to make sure it doesn’t hit the unintended. You don’t want to hit people at the lower end," Neal, D-Mass., said.
The White House has defended the plans, 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 has clarified 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 last 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)."