PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Joint Letter to Congress Opposing Consumer Financial Accounting Reporting

By at 13 September, 2021, 12:04 pm

Dear Leader Schumer, Leader McConnell, Speaker Pelosi, and Leader McCarthy:

As Congress continues work on the Build Back Better Act, we write to express our ongoing concerns and
opposition to any proposal that would require financial institutions to report to the IRS on transactions in
business and personal accounts. 1 We represent small businesses in diverse industries from across the
nation and financial institutions of all sizes and charter types. We support the goal of improving tax
compliance to collect appropriate tax revenues due.

Recent polling by Morning Consult shows that two-thirds of voters (67%) oppose proposals to transfer
more banking data to the IRS. Opposition is bipartisan, with more than half of voters (53%) strongly
opposed and only 22% supportive.

Indiscriminate, blanket data collection would amount to a troubling effort to profile American taxpayers
based on account characteristics without grounds for suspicion of tax evasion. Such profiling is
inappropriate in all law enforcement contexts. Supporters of the proposal claim that it is an effort to
identify a small number of wealthy taxpayers who use sophisticated techniques to evade taxation. This
simply does not square with a broad, indiscriminate sweep of consumer financial data.

Moreover, we are concerned about the IRS’s poor record of data security which exposes taxpayers’ data,
compromises their privacy, and makes them vulnerable to identity theft. Many Americans were rightly
disturbed by the recent publication by ProPublica of confidential taxpayer data. The IRS has yet to
explain what happened: Whether this was the result of a systems breach, an internal leak, or something
else. The Morning Consult poll found that more than half of adults (54%) do not trust the IRS to keep
their financial data safe from data breaches. Distrust is highest among voters over the age of 45, those
who make under $100,000 per year, and those in suburban and rural areas. In today’s environment,
privacy and enhanced security of taxpayer data must take precedence over the mass collection of new
data.

Further, we fear that new, intrusive account reporting would undermine the important policy goal of
reducing the unbanked population and could well drive more Americans out of the banking system. More
than three in five adults (64%) do not trust the IRS to monitor their deposit and withdrawal information.

This includes 50% of Democrats, 73% of Independents, and 75% of Republicans.

In many American communities, there is a high level of distrust of government in general and the IRS in
particular. These include certain marginalized communities as well as those recently arrived from
authoritarian regimes that spy on their citizens. This distrust is a primary reason why too many Americans
opt-out of the banking system. In fact, the Morning Consult poll found that 55% of respondents said their
banking habits would change if they knew their transactions were being reported to the IRS. Those who
would change their habits include 57% of Democrats and Republicans, 61% of voters in urban areas, and
58% of voters in rural areas.

Finally, we are concerned that the Treasury proposal would create taxpayer complexity and confusion.
Taxpayers will likely have to receive new or modified 1099s for every account they hold containing funds
flow information that may not be relevant to their tax liability. Giving taxpayers more forms and more
data to sort and evaluate will make tax compliance more difficult. Tax simplicity is an important goal that
promotes tax compliance.

Financial account reporting should be rejected in favor of more equitable means of reducing the tax gap,
including IRS systems enhancements and better training.

Thank you for your consideration.

Sincerely,

cc:  Members of the U.S. Senate
       Members of the U.S. House of Representatives 

1
“Introduce Comprehensive Account Reporting to Improve Tax Compliance.” General Explanations of the
Administration’s Fiscal Year 2022 Revenue Proposals. U.S. Department of the Treasury. May 2021. Page 88.

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