Mississippi Bankers Association opposes reporting millions of customer transactions to IRS

As Congress considers the massive $3.5 trillion budget reconciliation package, Mississippians need to pay attention to an easy-to-overlook provision of the White House’s proposal that would require financial institutions and other financial service providers to report a new, broad array of financial activity to the IRS. As with every large legislative proposal, the details matter – and this is a particularly important detail found deep in the White House’s proposal that every Mississippian concerned with privacy should be aware of.

As part of the “tax compliance agenda” of the Americans Family Plan, the administration has proposed that a broad set of details about business and consumer bank and other financial transaction details be reported to the IRS. To be clear, Mississippi banks support compliance with federal tax laws; however, the requirements that the administration have put forward are vast and complicated. If enacted, this proposal would generate a new trove of data that the IRS is unlikely to effectively use or protect while impacting the privacy of nearly every Mississippian that has a bank account.

The White House’s plan would require financial institutions and many other providers of financial services to track and submit to the IRS information on the inflows and outflows of every account above a de minimis threshold of $600 during the year – or any account that has an average of $50.00 worth of activity each month. This proposal would create a dragnet, collecting the financial information of nearly every American and requiring significant bank industry and government resources to build, police, and maintain the data. The IRS is a constant target for hackers, has had multiple data breaches, and continues to deal with the fallout of identity theft and false tax returns. Adding this broad set of data for every account that meets the $600 de minimis threshold will expose even more taxpayer data to cyber risk.  The cyber and privacy risks this proposal entails are serious and must be considered by Congress before this proposal is adopted.  Before such a broad proposal becomes law, policymakers must explain how account-holder data would be used and protected, and whether a program of this scale and scope infringes on the American people’s reasonable expectation of privacy.

The proposal is also operationally complex. In a letter sent to Congressional leaders on September 14, Secretary of the Treasury Janet Yellen asserted that this proposed regime would be simple to execute and represents a low-cost mechanism to help the IRS collect owed taxes. But designing system capabilities to capture and report account inflows and outflows and other information is complex, expensive to maintain, and will take years to fully implement. Banks will likely also be required to dedicate staff resources to complying with this proposal. Staff resources and costly system enhancements will be necessary on an ongoing basis to assist customers and their income tax preparers in understanding this new data. Implementing this proposal in its current form would be a significant operational undertaking, especially for Mississippi’s community banks that play such an important role in supporting economic growth at the local level. The potential costs of complying with such a broad proposal could seriously strain the resources of our state’s community banks, which could in turn dampen those banks’ ability to serve their communities. Every dollar a bank must spend on compliance and reporting could potentially translate into up to ten dollars in lost economic impact of a new loan.

Banking relationships are built on trust between the bank and its customer. In a poll recently commissioned by the Independent Community Bankers of America, the firm Morning Consult recently found that 67% of Americans oppose this proposal – and lack of trust was the largest reason cited for opposition. Bankers are not at all interested in seeing the trust they work so hard to build with their customers and communities erode due to an unvetted government proposal.

In closing, while Mississippi banks agree that the IRS should hold taxpayers accountable for what they owe, we question how helpful this proposal would be toward that goal.  In her letter to House leaders, Secretary Yellen argued that this proposal will “help the IRS pursue high-end noncompliance…”, or, in other words, go after the wealthiest Americans the IRS believes are dodging taxes.  But this proposal is neither targeted on the wealthy nor focused on those who dodge their tax bill.  Instead, this proposal would create significant privacy concerns for everyday Americans without providing a proper explanation of how the IRS will store or protect this enormous new archive of individual and business information. Bankers want to serve their communities and help them grow, not act as data collection agents for the IRS.  Mississippi banks will continue to oppose this proposal, and we hope you will join us in expressing your concerns to our elected officials.