(The Center Square) – Missouri Treasurer Scott Fitzpatrick is joining 22 state leaders opposed to requiring financial institutions to report all personal and business transactions over $600.
The new requirement is part of the American Families Plan, signed into law in April, and designed to detect uncollected taxes. In May, the U.S. Department of Treasury published a 114-page document with recommendations effective during fiscal year 2022. It included creating a comprehensive financial account information reporting system through the Internal Revenue Service. Financial institutions would be required to annually report data on accounts in an information return. It 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. It will apply to all business and personal accounts held in a financial institution, including bank, loan and investment accounts above a fair market value of $600.
“These proposals follow a troubling pattern of increasing government overreach on the part of the Biden Administration and the Democrats in Congress,” Fitzpatrick, a Republican running for state auditor in 2022, said in a statement. “Once again, they are not considering the potential impact on small businesses and our small community banks and credit unions – and if they are, then must not care.”
The proposal also requires entities involved in settlement payments to collect taxpayer identification numbers and file a revised Form 1099-K expanded to all payee accounts above $600. Gross receipts, purchases, physical cash, payments to foreign accounts and transfers will be required to be reported.
“We do not believe the federal government should give the IRS the unprecedented and unconstitutional power to peer into law abiding citizens’ private financial accounts,” the state financial officers wrote in a letter to President Joe Biden and Treasury Secretary Janet Yellen. “This would be one of the largest infringements of data privacy in our nation’s history and is a direct assault on law abiding private citizens’ financial disclosures.”
The letter, coordinated by the State Financial Officers Foundation, states the regulation would impact more than 100 million Americans who currently have a financial account. Last year, more than 127 million Americans received in excess of $600 in funding from the Coronavirus Aid, Relief and Economic Security Act. Tens of millions of citizens received more than $1,000 a month in federal unemployment benefits and new child tax credit payments.
“The impact of these proposals touches millions of Americans – and puts their data privacy at risk,” Fitzpatrick said. “Not only that, it might discourage unbanked Americans from opening bank accounts, which is detrimental to their financial health.”
Similar requirements will apply to those holding and executing crypto asset exchanges. Taxpayers buying crypto assets from one broker and transferring them to another broker and businesses receiving crypto assets in transactions greater than $10,000 will be required to report. The document gives the secretary of the treasury “broad authority to issue regulations necessary to implement this proposal” effective for tax years beginning after Dec. 31, 2022.
The state leaders said the cost to small community banks and credit unions will be “devastating” if they’re required to design a system to track and report the mandated information. They criticized a lack of “guardrails” to prevent abuse of the information by the IRS or others in government. They stated the data will make the IRS a target of cyber criminals.
“This reporting requirement will consistently put a large amount of sensitive financial data in transit to the IRS and will be at constant risk of cyber attack,” the letter stated. “The IRS does not currently have the capability to effectively utilize or protect this data. If passed this will be one of the largest and most continuous data mining exercises against Americans in our history and will put a constant strain on customer privacy, data security and overall safety of the banking system.”
A similar letter was signed by 140 members of Congress and sent earlier this month to Biden, Yellen, House Speaker Nancy Pelosi and IRS Commissioner Charles Rettig. It was signed by Missouri Republican representatives Vicky Hartzler, Blaine Luetkemeyer, Jason Smith and Ann Wagner.
The American Bankers Association (ABA) joined a group of 40 organizations representing financial and business interests in sending a letter to Speaker Pelosi and Minority Leader Kevin McCarthy and all members of the House on the matter.
“While the stated goal of this vast data collection is to uncover tax dodging by the wealthy, this proposal is not remotely targeted to that purpose or that population,” the ABA letter said. “In addition to the significant privacy concerns, it would create tremendous liability for all affected parties by requiring the collection of financial information for nearly every American without proper explanation of how the IRS will store, protect, and use this enormous trove of personal financial information.”