In my course of work, every quarter we receive electronic data matches from banks. They’re not as thorough as what the feds may want, but they contain customer information, current bank account types and balances, whether the person is a sole/primary/secondary account holder, and other specific banking information.
IME small banks are the most thorough providers of information. The behemoth banks may or may not comply with the laws regarding providing this information, they rarely respond to follow up requests for further info, and often do not follow our requests for account holds in a timely manner. Small banks and credit unions are fast, thorough, and beyond helpful.
I foresee the smaller banks offering up the info without hesitation and the large banks finding they (for an unknown reason) are unable to comply, their dog ate their homework, or “oops, that’s not my department”.
Banks currently send the IRS an annual report about how much interest an account earned. This would basically be the same thing, but instead would be the total in coming and out going amounts that year.
As far as it being set to $600 I think that Si_Amigo probably had it right. If $600 was the minimum required disclosure amount for a 1099 form, that that would be a logical place to set the income reporting requirement. I don’t think it was chosen with specific goals in mind. The speed with which it was revised upward without any push back, suggests that this low value wasn’t a crucial element of the plan.
This doesn’t seem particularly onerous to me. The bank is just going to tweak the database query they run at the end of the year on every account. And it’s not like every transfer above some threshold is going to be flagged for review by a human. The IRS is going to feed all the database reports into a their own database and run their own automated queries to look for the people who are getting paid under the table/laundering money/whatever.
I might be a little confused here. Everything that comes into my banking account is via my work - salary and bonuses. And I’m not trying to brag here, but it’s more than 10k a year. But I think the inflow that the IRS cares about is going to be 0. The outflow, on the other hand, is also greater than 10k - mortgage payments, utility and credit card bills, etc. And I don’t see an exemptions for that. I can’t imagine I care much in practice, and my account activities probably rate as “Terribly Boring”, but would my account be flagged under this regimen? And if so, what’s the point of exempting salaries/wages if they’re just going to (typically) be balanced by equally-sized withdrawals on the other side of the ledger?
Financial institutions would report data on financial accounts in an information return. The
annual return will report gross inflows and outflows with a breakdown for physical cash,
transactions with a foreign account, and transfers to and from another account with the same
owner.
So not every transaction, but gross (total) inflow and outflow annually, with cash, foreign transactions, and certain transfers broken out separately.
Well, you are supposed to disclose to the IRS any money you are paid if you are a private contractor over that $600.00 amount (annually…so, not a lot of money), so not sure why that would need to be changed. It’s interesting that this was coupled with the proposed bank activity (assuming the speculation about this earlier was or is true) since that is almost like it’s targeting people at the low end of the spectrum who might not be disclosing their full income. This would be people like private home cleaning folks, gardening folks, or others doing work as private contractors getting paid by their clients.
The idea is to get more reporting about businesses’ income to improve income tax compliance. People whose income comes from W-2s and 1099-DIVs have really good tax compliance, because the IRS is definitely going to catch them if they don’t. People who run businesses have astonishingly poor tax compliance because of they many ways they can cheat. This proposal is intended to somehow close that gap.
I think that’s only a small part of what they are looking for. The proposal wants the reporting breakdown to include:
Cash inflows and outflows (so this would include your person who takes cash and deposits it in the bank, but it also includes a car dealer who takes checks and credit card payments from customers but withdraws cash from the bank account, or a person who runs vending machines and deposits large amounts of cash in the account.)
Transfers to or from other accounts by the same holder.
Transfers to or from offshore accounts (the value of this information seems pretty obvious).
I think the idea is that the IRS can look at the difference between inflows and outflows and have a rough idea of profit for the account. If the inflows and outflows are roughly equal, the IRS assumes the business is breakeven If the inflows are much higher than outflows, the IRS assumes it’s profitable. (There are, of course, vast differences between tax profit and the difference between inflows and outflows but this would be a starting point for IRS analysis that would give them insight into the accounts. They would need to do considerable adjustments to this number for businesses in many industries to account for non-cash adjustments to profit, like depreciation for real estate and depletion for mining operations, but this is a start.)
It would probably also (again, using rough judgment) assume that transfers to another account by the same holder are also likely profit and that transfers by individuals to offshore accounts are both profit and hiding assets overseas.
Transfers to a different business account would effectively be reported as gross inflows for that other business, so the IRS would expect the owners of that business to report a profit. And so it goes, improving the IRS’s ability to estimate business profits, making it harder to evade taxes. This assumes that the IRS also gets the technology they need to look into this data to find undisclosed income. That is not a trivial problem.
I agree that the $600 threshold was probably set to match the 1099 reporting threshold. It could probably be higher while still preserving most of the information benefit of the reporting for the IRS.
But, it’s an annual report. So, once your account is “flagged” for the year by exceeding the activity reporting threshold, there would be no further need to “flag” it again. Once your account is flagged, the bank makes the report for your entire account at the end of the year, which would look something like this:
Inflows: $52,000 (including $300 cash, $2,000 from XT’s other account, and $500 from an offshore account)
Outflows: $50,000 (including $2,400 cash, $10,000 to XT’s other account, and $15,000 to an offshore account).
The actual contents of the report, and its detail, would be left up to Treasury Department regulations.
The funny thing is that once the banks have to build the IT system to prepare these reports, whether they run it on a $600 threshold or $10,000 threshold is completely immaterial. Somewhere in America I’m sure there’s a small bank that could conclude a $100 million threshold means they won’t have a reporting obligation next year and they might figure that perhaps they could do this manually if the threshold were, let’s say, $1 million but at any of the reporting thresholds being discussed, the systems and compliance cost would look almost exactly the same.
This is the type of modification designed to mollify privacy critics that radically increases compliance costs. I pay one of my employees’ salaries by a personal check (she’s a household employee). How the hell is the bank supposed to design a system to account for that? And the IRS can doesn’t care about employee cash flows because it already gets their W2, so if employees think they are keeping some super-secret information from the IRS with this carveout, they are…misguided.
As discussed, there wouldn’t be a lot of disclosure about where the transactions came from or where they went (aside from cash, to another of your accounts, or to an overseas account). It’s not as granular as some of the reports seem to suggest although it could get more granular over time subject to Treasury regulations.
I understand if you don’t want to say but what line of work is that?
Your account is terribly boring and the IRS doesn’t particularly care about it. It sounds like your account would potentially be flagged by this but, in all likelihood, it would also be entirely ignored by the IRS.
I’m not sure how the exemption for salaries would work but I could see a regime where they flag your account and report that you have massive net outflows because they don’t count your salary income (which they already know about from the W4). They don’t particularly care about an account like that. They care about accounts where there are massive net inflows by people who report very little income.
Because they are trying to improve compliance rather than making it worse? Setting up the systems to send out $600 1099s costs money but once set up, it doesn’t cost a lot to comply with. Raising the threshold to whatever reduces compliance costs only a little but potentially decreases income tax compliance by a meaningful amount.
I don’t think it’s really targeting a maid who does a few houses on the side. If she’s only making $30 or $40,000 per year, she would owe very little in income tax. The skin isn’t worth the candle. It certainly is intended to capture people who are “private contractors getting paid by their clients.” Think home renovation companies, college admissions consultants, architects, fee-only financial advisers, etc. Right now, the IRS has no real idea how much money these people make. They don’t have a good sense of their revenue other than what comes in on a 1099, which in many cases may be minimal because their money, or a good chunk of it, comes from private individuals who don’t have to file 1099s. The IRS doesn’t have any sense of their expenses, other than that these firms sometimes generate 1099s for others. The result is that it’s trivially easy for businesses like this to inflate their expenses, understate their revenue, and evade taxes. The IRS estimates that in some industries, net income is understated by more than 50%. Looking at these businesses bank accounts, and seeing that some have $500,000 or a $1 million more coming in each year than going out gives them some sense of who is making out like a bandit and perhaps not paying all the taxes they owe.
Out of curiousity, how would you all feel about this if it becomes law - and Trump wins again? Are you comfortable having the Trump Administration being able to snoop through your bank transactions - or those of Democratic candidates?
Whenever proposing more government power, you should always imagine it in the hands of the worst opponent you can think of - because eventually that’s what you’ll get.
The bill has 80 billion dollars for hiring new IRS agents to audit all this. That’s a massive expansion of their intrusive power. Won’t it be fun when you have to worry that selling your car might trigger an audit?
What this is really going to do is accelerate the move to cryptocurrency - until the government cracks down on that too.
As someone who talks alot about deficit spending and US federal debt, you should be happy to hear that the IRS is being better funded, since that will result in a reduction in tax avoidance, almost certainly more than the $80 billion price tag.
As this doesn’t give the power for the administration to snoops through your bank account transactions, I’m not sure what you have said here has any relevance to what is actually happening here.
Not really. That’s a fairly cynical view at best, and completely disregards everything about how our government is set up.
I mean, are you worried about laws against murder because eventually, you are assured to get a sheriff and DA that hates you and will charge you with a murder you didn’t do?
If so, wow, I’m glad I don’t like in the world that you are fantasizing. If not, then you understand that your statement is simply meaningless fear mongering.
Not just this but all of it. Lots of taxes go unpaid as the IRS doesn’t have enough resources to find all the tax cheats. In fact, having more agents means that your smaller businesses will be better off, as it will be people checking over audits, and not just computers getting a flag and sending a nastygram to a business owner who has done everything to follow the tax code. I certainly wouldn’t mind having a few extra agents around to expedite fixing some errors the IRS has made that I’ve been working to get rectified for months now.
Why would you think that this would be the case? Is this something that you’ve heard, or is it just something that you’ve made up?
That’s fine, crypto is actually easier to track than cash. The blockchain can be hacked given a reasonable amount of resources, you passing a c-note to your friend cannot be.
People going to crypto to avoid being tracked make me laugh at their combination of paranoia and naivety.
The IRS already has the legal authority to pull your banking records, so this is not a material change in the law. We have essentially established that financial records are not private from the IRS, and that’s been the standard as long as anyone here has been alive.
By the way, the current way IRS investigators pull bank records is by issuing a “summons” to the bank. The IRS does not require a warrant or to go through the court system. You can contest the summons–the case is heard in an administrative law court where the IRS wins basically as close to 100% as you’d imagine they win.
The IRS already has significant automated auditing capacity.
The important element is how is the data being used, the IRS is significantly insulated from easy political influence into its investigations. I would have zero point zero concern about this system if Trump were President.
It is estimated upwards of $600bn a year is not paid in tax–and I’m not talking about shenanigans the rich use to decrease their tax burden that is entirely legal, I’m saying there are reports out there that suggest we have over half a trillion a year in taxes simply never being collected, that should be.
Businesses (and wealthy people who own them) are overwhelmingly at stake. By the way my day job is running a real estate firm in which I’m a partner, I’m one of these business owners. We don’t intentionally break the law and we pay our taxes, but the structure of how businesses report income and report on their financial activities, and how they file taxes, is far more open to “interpretation” and it’s too time consuming and complicated for the IRS to handle it all so a massive number of business owners simply lie and don’t pay significant amounts of tax, and never face sanction.
As someone who pays every cent we’re owed, I don’t like that I’m competing with businesses that don’t pay their taxes. No American should be happy about someone not paying their proper taxes owed.
This system would likely be quasi-automatic, in the years leading up to its implementation private firms would emerge selling software packages that likely automate much of this. Remember, every bank is fully electronic, and they already have tons of reports they run all the time. For example any bank that exists likely issues reports of transaction history to lenders for mortgages very regularly, as you are frequently required to hand over such reports when applying for a mortgage. What the new software would do would likely be building “hooks” into existing systems and generating reports. I don’t think it will be that onerous at all.
The IRS is also going to largely analyze this data with automated software, and a human will only look at it for cases that meet certain clear criteria. Why? Because it’ll be too much data to analyze more granularly than that. @Sam_Stone made a very low quality post and generally suggested a bunch of things that show ignorance of the law, banks, and also just represent fearmongering and poor posting in general. The idea all this data is going to some Communist Bernie Sanders supporter’s office at the IRS where he’s going to gleefully find out you ordered a giant dildo from GiantDildo dot com is not reality.
Won’t it be fun that an agency that has been deliberately gutted for 20 years so that the rich can evade their taxes, which they have been doing on an unprecedented massive scale, might be funded well enough to able to go after that flagrant breaking of our laws? Yes.
You’re complaining about the Orwellian possibility that the law might be enforced as if that is inherently scary.
And, hey, don’t IRS enforcement budget increases more than pay for themselves in the additional revenue they generate for the government? As a fiscal conservative, shouldn’t that make you happy? Or… are you worried that tax evaders will have a harder time breaking the law?
The only taxes some people want collected are excise taxes (BUT NOT ON GASOLINE!) because that approximates a tax on breathing air, which is what they’d really like but would be inconvenient to collect as current technology stands.
Okay, so this provision is to crack down on ‘under the table’ payments that aren’t reported. And any account that has more than $10,000 in cash deposits in a calendar year has to be reported to the IRS?
How does that contradict my statement that doing something like selling your car for cash might trigger an audit? Isn’t that the exact reason for this law? To be able to track and audit people making large cash deposits to the bank?
I suppose this isn’t exactly a ‘tax hike’ for people making under 400,000, but the burden of this law will likely fall primarily on them. Small business owners, for example.
Is this also a way to collect taxes from illegal immigrants? I assume most or all of them get paid under the table and pay little in tax. Can illegal immigrants open bank accounts in the US? How do banks report them to the IRS when the account holder has no formal presence in the tax system? No green card, SS number, etc?
Is all 60 billion dollars of funding to the IRS going specifically to enforce the auditing of small time tax payers related to this reporting requirement? I very much doubt that, but that’s what you’re saying it is. It is probably a general funding increase for the IRS, which desperately needs it because the party of “law and order” has been gutting the IRS for decades in order to facilitate law breaking by the right people.