The United States Treasury Department has announced that it intends to require all US financial institutions to henceforth file annual reports on aggregated inflow / outflow of funds from every American taxpayer’s financial accounts. This will apply for both individuals and businesses.
The proposal is part of the Biden Administration’s newly announced strategy to collect more taxes from high earners and high-net-worth individuals (HNWIs).
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 Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2019, which was passed in the waning days of the Trump Presidency.
According to the US Treasury Department:
high-income taxpayers disproportionately accrue income in opaque sources — like partnership and proprietorship income — where the IRS struggles to verify tax filings. As a result, up to 55 percent of taxes owed on these less visible income streams is unpaid, with disproportionate levels of non-compliance for those at the top of the income distribution.
Therefore the IRS proposes to collect information on financial account flows from third parties. To quote:
this proposal provides additional information to the IRS without any increased burden for taxpayers. Instead, it leverages the information that financial institutions already know about account holders, simply requiring that they add to their regular, annual reports information about aggregate account outflows and inflows. Providing the IRS this information will help improve audit selection so it can better target its enforcement activity on the most suspect evaders, avoiding unnecessary (and costly) audits of ordinary taxpayers.
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.
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:
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’).