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Protect Your Privacy

Posted by LFCU on April 16, 2020

In an effort aimed at increasing taxpayer compliance, the Biden Administration has proposed that financial institutions be required to report additional account holder information in an enhanced annual I.R.S. Form 1099-INT.

  • CUNA remains concerned about the effect this proposed new requirement will have on credit unions. Privacy and data security are paramount issues. Whether it is the massive data breach at the federal Office of Personnel Management in 2014 or this year’s IRS leak of federal tax returns of many wealthy Americans, CUNA remains doubtful that such data will be safe and private.
  • Also, smaller credit unions would be especially burdened by this new proposal. From the increased costs of software upgrades to staff training, smaller institutions would perhaps need financial resources and additional time for implementation to meet new requirements.
  • CUNA also has concerns about how the proposal will affect accounts that are comingled with business and personal funds, as well as how jointly held accounts would be treated.
  • CUNA also wants to avoid any unintended consequences that may arise from the Administration’s proposal. For example, the Foreign Account Tax Compliance Act of 2010 placed similar burdensome reporting requirements on financial institutions. In response, many Americans overseas were unable to obtain or lost access to the banking system as many financial institutions were unwilling or unable to meet the requirements of that law. CUNA believes that any future account reporting requirements be subject to rigorous and lengthy review and study.
  • Credit unions and other financial institutions already churn out many federal tax information reporting forms. This new requirement further puts credit unions in the position of further policing their members and account holders. CUNA believes that better tax compliance can be achieved through other means such as the IRS using its existing audit authority.
  • It should be noted that the $600 de minimus exemption is deliberately set so low in order to require financial information from nearly every account held in American depository institutions.
  • CUNA has significant concerns about this proposed new compliance burden. CUNA strongly urges lawmakers to oppose the adoption of these costly and burdensome new requirements on financial institutions.

Beginning in 2023, the Administration hopes that the IRS will be able to use this information to increase tax compliance and thus raise federal revenues by $463 billion over ten years. The Administration’s Fiscal Year 2022 budget proposes the creation of a new and comprehensive financial account information reporting regime. Banks, credit unions, and other entities would be required to annually report to the IRS the gross inflows and outflows of account holders (businesses and individuals) with a breakdown for cash, transactions with a foreign account, and transfers to and from another account with the same owner.

These requirements would apply to savings, transactional, loan, and investment accounts. A de minimis exception would exempt accounts with gross flow threshold of $600. The vehicle for this reporting will be the existing I.R.S Form 1099-INTs sent by financial institutions, brokerages, and others to account holders who earned more than $10 in interest in a calendar year. In tax year 2019, over 81 million of these forms were delivered or made available to individual a ccount holders.

Payment settlement entities would also be required to collect Taxpayer Identification Numbers and file a revised IRS Form 1099-K expanded to all payee accounts (except de minimis amounts), reporting not only gross receipts but also gross purchases.

Outlook over the next few months:

These proposed new reporting requirements are being taken seriously by the President’s allies on Capitol Hill. They have been mentioned in several hearings before the Senate Finance Committee and the House Ways and Means Committee. Senator Mike Crapo (R-ID) attempted to block these reporting requirements in the Senate Budget Resolution. However, the amendment failed by one vote in the Senate.

These proposed reporting requirements were expected to be included in the bipartisan infrastructure package in the Senate. However, opposition from Republicans prevented their inclusion.

This new compliance burden on financial institutions was mentioned as a “payfor” for the pending “human infrastructure” reconciliation package being assembled by Congressional leaders. The Ways and Means Committee is continuing its markup during the week of September 13, 2021 for the tax title of the Democratic majority’s $3.5 trillion “human” infrastructure bill. While this new burden was not included in the draft of the Build Back Better Act released by the Ways and Means Committee, it can still be included during the Committee markup, House floor consideration, or in the Senate.