Costs, benefits should be weighed for any new tax reporting requirements
Congress should carefully assess the costs and benefits of imposing a new level of data collection on the already over-complicated tax reporting structure, CUNA and other organizations wrote Monday to the Senate Finance Subcommittee on Taxation and IRS Oversight. The subcommittee will conduct a hearing Tuesday on lost revenue from tax noncompliance.
The organizations letter responds to a section in President Joe Biden’s American Families Plan that would require financial institutions to report information on account flows so “earnings from investment and business activity” are subject to reporting closer to that of wages.
“Recent proposals to create new reporting requirements for financial institutions would impose cost and complexity that are not justified by the potential, and highly uncertain, benefits,” the letter reads. “Furthermore, we believe additional reporting requirements guided by subjective criteria have privacy and fairness implications and the potential to put financial institutions in an untenable position with their account holders.”
CUNA notes that strengthening Internal Revenue Service (IRS) funding to facilitate targeted auditing of questionable tax returns is a much more efficient and effective approach.
“Assuming there were enhanced resources for audits, we expect it would be standard protocol for IRS auditors to ask taxpayers to do exactly the type of reconciliation under consideration,” it reads. “This analysis would be based on information the taxpayers already have in their possession (e.g., bank statements). Asking financial institutions to perform this role, piecing together a picture of individual taxpayers’ accounts, is inefficient and indirect, and account holders may rightly question whether this process is being applied fairly.”
The organizations also note:
- Financial institution reporting is already robust, and the organizations suggest a further cost-benefit analysis for an additional reporting requirement;
- New reporting would appear to require material development costs and process additions for financial institutions; and
- Some of the estimates that have been used to derive the expected benefits from this proposal may be outdated and misleading.