And, so it’s coming.

The recommendation to make it fairer, to make the richer Americans find it harder to hide their income, seems to be coming part of our system.

We all know that most Americans are paid via wages.  And, those wages are reported to us and the IRS via our W2’s.  Banks notify the IRS (and us) of how much interest we earn (via 1099s).  Stock brokers report our dividends, capital gains, and stock sales to the IRS (and us) also via 1099s.  Even our mortgage interest is reported (as is the total amount of said mortgage) to the IRS (and us) via 1098s.  So, for most of us, our lives are open books.  The  IRS knows everything about the money we make and spend.

But, the rich… They often earn their money from pass-through businesses.  Which lets them classify things that are bought as deductible, without much scrutiny.  Or, they buy and sell art work, businesses, etc.   That money has been much harder for the IRS to track.

To fund his American Families Plan (a $1.8 infrastructure program), President Biden is requiring banks to report transactions so that any potential taxes can be collected.

This is part of President Biden’s plan to augment the IRS budget by some $80 billion over the next decade.   This will double it’s enforcement staffing- plus augment those folks with the technology needed to determine underreported income.

All annual inflows and outflows through the banking system would now be reported to the IRS.  Not just banks, but Venmo, Paypal, etc would be subject to said reporting.   The administration expects this reporting will allow the IRS to collect some $ 700 billion in additional revenue, over the next decade.  (The IRS currently estimates that some 55% of business income is misreported- or completely unreported.)

The goal is to make it possible for the IRS auditors to easily identify inconsistencies between the business tax returns and the banking statements.    After all, that is exactly what happens for more than 90% of the taxpayers who already are carpeted with W2s, 1099s, 1098s, etc.  (Please note that this new reporting of funds could be  non-taxable gifts or deductible business expenses.  Not all of it is chicanery.)

Of course, the banking industry is not happy with this concept.  (Besides the fact that they may profit from the unreported income, there are significant costs involved in this more complete reporting system.  They claim that much of this information is not already captured, so new programs must be developed to do so.  This is why the IRS also needs new technology so it can properly analyze the newly divulged transactions.)

Oh, and this change will require congressional approval!

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