Nearly every American who has a bank account and has gross inflow and outflow of at least $600 would receive a new form from their financial institution under the bank surveillance plan as currently proposed in the reconciliation bill.
Although it has been part of the bill from the beginning, the bank surveillance plan is suddenly gathering a storm of opposition. Those who oppose it claim that the information wouldn’t, by itself, aid in ferreting out tax cheats, and that it would constitute an additional burden on an already overburdened IRS. In addition, opponents charge that it would be a constitutionally prohibited violation of the Fourth Amendment prohibition of unreasonable searches and seizures.
In a letter to Congress signed by 100 other trade groups, the Independent Community Bankers of America noted that, although intended to help the IRS target wealthy tax dodgers, the unintended consequences would impact every American and small business with an account at a financial institution.
“While recent proposals suggest that increasing the de minimis threshold to $10,000 is less objectionable, this is a flawed assumption and will not significantly reduce the scale of this new IRS program,” the letter stated. (
The proposal would create serious financial privacy concerns, increase tax preparation costs for individuals and small businesses, and create significant operational challenges for financial institutions, according to the ICBA. It noted that proposals to “soften the edges” of the new regime, by exempting some payment processors, providing support to institutions to aid processing, or carving out certain types of flows such as mortgage payments merely add significant operational complexity.
Privacy concerns are an important issue, according to the ICBA.
“The IRS is not impervious to being hacked and has suffered massive data breaches in the recent past where the personal information of taxpayers was stolen,” it noted. “According to the Treasury Department, they only plan to use the data to increase the audits for those who make over $400,000 a year. The likely question of any American taxpayer making less than that is: Why does the IRS need my account information if they aren’t going to use it?”
In response to the reporting regime proposal, Republicans on the House Ways and Means Committee have introduced the Prohibiting IRS Financial Surveillance Act. The bill, introduced by Rep. Drew Ferguson, R-Georgia, is cosponsored by all Ways and Means Republican members.
And in a letter on Oct. 18, 2021, to Secretary of the Treasury Yellen, Republicans on the Ways and Means Committee expressed privacy concerns over the proposal: “We are skeptical of the need for this dangerous expansion of IRS oversight into the daily lives of Americans, have reason to believe the true targets are farmers, families, and small businesses, and question the IRS’s capacity to protect this unprecedented amount of personal banking information,” the letter stated.
Republicans in the Senate are also marshalling opposition to the proposal. U.S. Senators Mike Crapo, R-Idaho, ranking member of the Senate Finance Committee, and Pat Toomey, R-Pennsylvania, ranking member of the Senate Banking Committee, announced they will lead a group of Senate Finance and Banking Republicans in a press conference on Oct. 19, 2021, to discuss the proposal.
Stephen Mankowski, tax chair of the National Conference of CPA Practitioners, questioned the constitutionality of the proposal. “The Fourth Amendment protects the right of privacy against unreasonable searches and seizures by the government,” he said. “Simply using the tax gap and trying to make a case that wealthy Americans are underreporting their income does not appear to constitute the ability for the government to obtain this information on basically all bank accounts.”
“Moreover, even if we skip the legality of the proposal, when would the IRS actually be in a position to start reviewing the data, let alone be able to make determinations of the accuracy?” Mankowski asked. “The reporting would be ongoing, so more data would be coming in all of the time.”
“Congress passed the Taxpayer First Act to restructure the IRS to be more taxpayer-friendly and address systems updates,” he said. “We continually see that the IRS does a nearly stellar job in the implementation, while not getting the adequate funding from Congress to truly perform these tasks. Maybe it’s time for Congress to allow the IRS to get back to basics, implement the Taxpayer First Act to modernize the IRS and return to its role of tax administration.”
