There has been some confusion about this aspect of the IRS plan, in part because critics and banking lobbyists are mischaracterizing the information reporting proposal. The IRS will only see two pieces of information: annual gross account inflows and outflows, with no detail on individual transactions. As we explained previously, this is far less burdensome than some other information reporting requirements already in place, including the requirement that brokers report sale proceeds and the tax basis of assets (i.e., cost) on 1099-B forms, which are now routinely distributed to taxpayers and the IRS. Under President Biden’s proposal, financial institutions would add two pieces of information to 1099-INT forms: the total outflows and inflows into all accounts that exceed $600. They already are required, on 1099-INT forms, to provide taxpayers and the IRS with the amount of interest income that taxpayers receive (if more than $10). Moreover, the additional burden on financial institutions is minimal: the information they will be required to provide the IRS is already readily available to them and will be provided to the IRS on forms they are already responsible for generating. This proposal could not be clearer: the taxpayer does not need to do anything. Taxpayers will not be required to reconcile information about their bank accounts with the information on their tax returns. The proposal is designed not to burden taxpayers. It places no new burdens on taxpayers and is simple for banks to implement. Here are five key points to understand about the information reporting component of the plan. Reliable information is critical to an effective and fair tax system.” Ĭontrary to some confusion and misinformation, the information reporting proposal is specifically designed to impose no burdens on taxpayers, to protect privacy, and to shield people with low or moderate incomes from higher audit rates. Without third-party information reporting, compliance rates are below 50 percent. As IRS Commissioner Charles Retting recently wrote to Senator Elizabeth Warren, “increased information reporting targets underreported income, which is the largest category of the tax gap.” A group of his predecessors has added: “Research shows that when the IRS has access to third-party reporting, compliance rates top 95 percent. The information reporting component would raise $460 billion - the majority of the revenue in the Biden tax gap plan - according to Treasury. Significantly, the House Ways and Means Committee’s legislation to raise revenue adopts the full Biden Administration $80 billion funding proposal to rebuild the agency’s audit staff and upgrade its computer systems.Ĭritically, the Biden plan also provides for a set of financial reporting rules that would help the IRS identify unreported income and reduce the likelihood that wealthy households underreport their income in the first place, which the House should add as the legislative process continues. The proposal provides robust funding to rebuild depleted audit staff and upgrade the IRS’s antiquated technology systems. A decade of deep budget cuts has led to a 30 percent reduction in the well-trained IRS audit staff needed to audit the largest corporations and the highest-income filers, leading to a sharp drop in their audit rates. The plan has three interdependent components: people, computer systems, and information. Closing the tax gap will require, in part, more robust information the IRS can use to identify and collect those unpaid taxes.Ĭlosing the tax gap will require more robust information the IRS can use to identify and collect unpaid taxes.President Biden has developed a comprehensive plan to reduce the tax gap that the Treasury Department estimates would raise $700 billion over ten years. This “tax gap” - taxes owed but not collected - is now roughly $600 billion annually with fully $160 billion annually just from unpaid taxes of the top 1 percent, as a new Treasury report highlights. In addition, a key source of revenue will flow from collecting more of the taxes that high-income people and businesses already owe under current law. These investments will be paid for in part by asking wealthy people and profitable corporations to pay a fairer amount of tax. The major economic recovery legislation Congress is developing will make investments to reduce child poverty, address climate change, and increase economic opportunity and security for families across the country.
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