The United States Treasury Department has announced a proposal to require financial institutions to report account flows to the Internal Revenue Service.
The proposal is part of the Biden Administration’s newly announced strategy to collect more taxes from wealthy Americans.
The Biden Administration plans to spend USD $80 billion on the Internal Revenue Service (IRS) over the next ten years to eliminate what it deems as ‘sophisticated tax evasion’. IRS auditors will be focused on complex investigations of large corporations, partnerships and global HNWIs.
This investigative effort will be backstopped by the new FATCA-style reporting requirements, similar to those introduced in the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2019.
According to the US Treasury Department:
Therefore the IRS proposes to collect information on financial account flows from third parties.
The Biden Administration’s thinking is that the top 1% of Americans hide more than 20% of their income from the IRS. With a more robust IRS, the US Treasury Department could collect another USD $175 billion in lost annual taxes.
Wealthy beware
Additionally being considered within the Biden Administration is the proposition that effective tax enforcement at the very top of the US income distribution requires a comprehensive approach, including:
- Greater scrutiny of pass-through businesses.
- More comprehensive audits, such as those conducted in the IRS Global High Wealth Program.
- More thorough litigation of tax disputes.
- New regulations to clarify that certain activities are non-compliant.
- Whistleblowing programs.
New regulations on tax preparers
New measures will also be introduced to regulate the industry. To quote the announcement:
Taxpayers often make use of unregulated tax preparers who lack the ability to provide accurate tax assistance. These preparers submit more tax returns than all other preparers combined, and they make costly mistakes that subject their customers to painful audits, sometimes even intentionally defrauding taxpayers for their own benefit.
The Biden Administration plans to give the IRS the legal authority to implement safeguards in the tax preparation industry. It will also include stiffer penalties for tax preparers who fail to identify themselves on tax returns and defraud taxpayers (so called ‘ghost preparers’).