Richwood Banking Company president and CEO Chad Hoffman is raising concerns about a proposed plan to help the IRS better audit taxpayers.
President Joe Biden’s administration proposal would require financial institutions to report the total amount of money flowing into and out of bank accounts of $600 or more.
“So, for instance, if you had an account that had $700 in it, every transaction that goes through that account will eventually find its way into the IRS hands,” Hoffman said.
He added that almost “all accounts are going to have either $600 in it or $600 worth of transactions that go through it.”
Hoffman worries the proposal will motivate people to stop using banks, credit unions and financial service providers.
“It’s affecting our relationship with our clients. We may have clients that close their accounts with us because of something I had no control over,” he said. “They’re going to take it and put it in their mattresses at home. We’ve already had people come in to do that, and the law isn’t even passed.”
Hoffman reiterated the safety of financial institutions because clients’ money is insured by the Federal Deposit Insurance Corporation (FDIC).
“If your cash is in your house and your house burns up, there’s no insurance to that. It’s gone,” he said. “We believe in the safety of financial institutions. We would never want to do anything that encourages people not to use financial institutions to transact their funds.”
However, if the proposal is passed into law, Richwood Banking Company would have to comply.
The local company, among other financial institutions, have opposed the legislation and are collaborating to lobby against the proposal.
“So, we try to come together to help tailor policy that is both strong for regulatory purposes but isn’t an overreach or isn’t a compliance burden to financial institutions,” Hoffman said. “There’s a lot of things that we have to do that costs us money from a compliance perspective that doesn’t do anything for us. We’re basically just reporting this to the government.”
Clients who oppose the proposed bank reporting are also encouraged to contact their elected officials.
Hoffman is aware that sometimes lobbyists lose.
“Sometimes, we don’t get what we want through certain things because they think this is a good idea because there’s people lobbying for it,” he said. “For instance, right now the IRS is lobbying … for this policy.”
Some Democratic leaders have discussed raising the threshold higher than the $600 proposed by the Biden administration.
“I really don’t care where that minimum is. It’s not a good idea,” Hoffman said. “If they don’t have probable cause, if they don’t have a reason to be looking, that information shouldn’t just be voluntarily given for the heck of it.”
For years, financial institutions have been required to report cash transactions above $10,000, Hoffman said.
In addition, financial institutions must also report 1099 forms, which document income from self-employment earnings, interest and dividends, government payments and more, when paying more than $600 clients interest or for a vendor’s services.
“That’s where the $600 comes from. It’s already established out there,” Hoffman said, adding that for nearly 30 years the $600 amount has remained the same.
Tax officials say the intent of the proposal is to locate those hiding money, intentionally or unintentionally, and help close the tax gap of the wealthy who are not properly paying taxes.
“Once again, we’re all being scrutinized for something maybe a few people are doing,” Hoffman said.
White House officials have said that, historically, wealthy Americans have paid low income tax rates because “much of their income is taxed at preferred rates” and they “can choose when their capital gains income appears on their income tax returns and even prevent it from ever appearing.”
“There are a class of partnerships, businesses, high-income individuals who have opaque sources of income that the IRS doesn’t have direct information about. That’s where the tax gap is,” Treasury Secretary Janet Yellen told NPR.
Yellen has emphasized that the government is only asking for annual totals, not specific details about individual bank withdrawals or deposits.
The Biden administration seeks to increase taxes on the rich to fund a $3.5 trillion reconciliation bill called “Building Back Better” that would expand federal initiatives to fight climate change; decrease the cost of child care, higher education, prescription drugs, health care and housing; cut taxes for families with children and workers without children and create new jobs.
According to The Associated Press, the $3.5 trillion plan could be reduced to about $2 trillion and final approval of the Senate-passed $1 trillion infrastructure bill is currently on hold.
Biden claims the package will be funded by raising taxes on the wealthy, so the overall cost will be “zero.”
Under Biden’s agenda, the proposed tax rate would increase to 39.6% for individuals earning more than $400,000, or couples earning $450,000, a year. For large corporations, the proposal would increase the tax rate to 26.5% on incomes exceeding $5 million.
Biden reportedly promises not to increase the tax anyone making less than $400,000, according to The Associated Press.
The proposal has received criticism from Republican lawmakers because it is seen as an invasion of privacy.