One proposal within Biden’s 2022 revenue plan should worry everyone. Not just the 1%.

In May 2021, the Department of Treasury released a document titled General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals. Most of the document is nothing out of the ordinary, until page 88.

The plan states the current policy on Financial Account reporting:

“Business income is subject to limited information reporting. Current information reporting of gross receipts exists for only certain types of revenue (from Forms 1099-MISC, 1099-NEC, and 1099-K), and there is no information reporting on total deductible expenses.”

The document then states its reasons for making the change from the original policy stated in the Bank Secrecy Act (BSB). The initial policy in the BSB was that the government required financial institutions to report every transaction over $10,000 that moved in, out, and within the firm. The change from this policy is then explained:

“The tax gap for business income (outside of large corporations) from the most recently published Internal Revenue Service (IRS) estimates is $166 billion a year…While the net misreporting percentage is only 5 percent for income subject to substantial information reporting, the net misreporting percentage for certain categories of business income exceeds 50 percent.”

While this reasoning may help explain how some financial firms do not correctly report their statements, this same reasoning does not apply to most individuals using the banks. The users of the banks are at the mercy of the institutions they use. It is not the taxpayer’s fault for a bank’s faulty reporting, and yet a new policy is being implemented which would subject individuals to the same level of scrutiny:

“This proposal would create a comprehensive financial account information reporting regime. Financial institutions would report data on financial accounts in an information return. The annual return will report gross inflows and outflows with a breakdown for physical cash, transactions with a foreign account, and transfers to and from another account with the same owner. This requirement would apply to all business and personal accounts from financial institutions, including bank, loan, and investment accounts, two with the exception of accounts below a low de minimis gross flow threshold of $600 or fair market value of $600.” 

This proposition in the document makes it so that all banks must disclose any and all inflows and outflows totaling a value of $600 or more. The most significant problem with the entire document is in the proceeding paragraph stating:

“Other accounts with characteristics similar to financial institution accounts will be covered under this information reporting regime. In particular, payment settlement entities would collect Taxpayer Identification Numbers (TINs) and file a revised Form 1099-K expanded to all payee accounts (subject to the same de minimis threshold), reporting not only gross receipts but also gross purchases, physical cash, as well as payments to and from foreign accounts, and transfer inflows and outflows.”

On September 21st, 2021 the United States Senate passed the Treasury’s Revenue Plan for the 2022 Fiscal Year. This plan also contains the Democrat $3.5 trillion dollar budget proposal, after finally agreeing on the revenue and spending aspects of the document. No debates within Congress over the parts about transaction reporting have been mentioned. This bill will go into effect at the start of 2022. 

As stated in this part of the document, all taxpayer accounts will also fall under this bill, not only the banks. In this proposal, the government states that every taxpayer will be identified using their Taxpayer Identification Number. Banks must annually report and disclose all data relating to business and personal accounts that have over $600 in inflows and outflows, or that have transactions that are worth over $600.

Aside from the tedious work of keeping track of these purchases, this proposal is a complete invasion of taxpayer privacy.

These types of proposals against privacy have failed to prove their worth time and time again. In an article for Americans for Tax Reform, “Biden’s $600 Financial Reporting Requirement Could Lead to Even More Violations of Taxpayer Rights,” Isabelle Morales states that the IRS has failed to find evidence of tax fraud during intentional investigations more than 90% of the time—all while forgoing due process:

“The IRS Criminal Investigation Division (IRS-CI) regularly violated taxpayers’ rights and skirted or ignored due process requirements when investigating taxpayers for allegedly violating the $10,000 currency transaction reporting requirements, according to a 2017 report by the Treasury Inspector General for Tax Administration (TIGTA). In addition, less than one in ten investigations uncovered violations of tax law.”

These investigations the IRS-CI attempted were all intentional and done on a case-by-case basis. Surely, the IRS believed they had some basis for each investigation? Surely, the IRS was not intentionally hoping for tax violations?

If the intentional investigations of 2,500 special agents designated to investigate these exact matters fail more than 90% of the time, how successful will the 2022 proposal be—one that targets all taxpayers and not solely those under intentional investigations. 

The failure rate of taxpayer fraud will likely rise on those not transacting $10,000 or more, but transacting much less. 

Some questions immediately come into play. 

How many more investigations would this new proposal open up across the country? What will it cost to investigate all transactions over, not just select cases of $10,000, but every case with a transaction of $600? 

If intentional investigations fail, given the perceived expertise of the IRS on tax evasion/fraudulent matters, how many more investigations would fail that target the more likely and common case of those transacting $600? 

 In other words, by virtue of the IRS’s comical 90% failure rate to catch tax fraud in transactions over $10,000, one must wonder how much more successful a broad, unintentional investigation must be. 

Take the story of Jim and the baseball bat to see an analogy to the IRS-CI’s logic. 

Jim misses 90% of the pitches that he attempts to hit. Jim, frustrated with his .100 batting average (which is lower than the worst batting average in the MLB) decides he will take up a new strategy. Jim blindfolds himself and decides to swing with a shovel. To Jim, this logic makes perfect sense! He was failing when he used his intention and swinging with a shovel will cover much more area than a bat.

Unfortunately for Jim and the IRS, covering a wider area will not make you more accurate—especially when you remove intention to investigate with reasonable suspicion with unintentional mandatory oversight for any and all citizens with $600 or more in their bank accounts.

 If we assume that this new policy is NOT to catch tax fraud, given how illogical that would be, then what could the bill be attempting to do?

 If a .100 batting average will put you among the worst batters of all time, would you trust that batter when he steps up to the plate? If not, can you trust the entity that dictates how almost all of your finances must be handled? Lucky for us, a bad baseball player will only let down his team. But the IRS has millions of American taxpayers to track.