Baucus Administrative Reforms Target Bank Accounts as a “Closing the Tax Gap” Measure
December 17, 2013
The administrative proposals in Senator Baucus's staff documents may seem dry reading, but there is a potential time bomb buried deep in the weeds. One sincerely hopes it is not the first step toward a wealth tax on bank deposits. It is certainly a step toward less financial privacy.
Pay close attention to the Senate Committee on Finance Chairman's staff discussion draft of Tax Administration Provisions, Section C – Closing the Tax Gap. Its first provision requires banks to issue reporting statements (1099 forms) for all bank accounts, even those that pay no interest. Currently, the statements must be issued only if the interest exceeds $10 in a year. The 1099 forms are sent to the taxpayer and to the IRS.
Under the new provision, the $10 minimum would be replaced by $0, a minor change in the legal language, but a big change in practice and reporting costs. There is a big difference between replacing the current $10 de minimus rule with $1 or even $0.01, and replacing it with $0. If an account is non-interest bearing, why is the IRS interested in it? Accounts that pay no interest presumably have no associated tax. So what is the Chairman's staff's intent here?
Apparently, the IRS wants to have more information about accounts through which people may transfer funds. Perhaps some of the funds are being transferred abroad, where they may earn interest that the IRS currently has difficulty finding. But this has supposedly been dealt with already by stringent new requirements for individuals to report their foreign account information (with stiff fines for non-compliance) and by requirements for foreign banks to report account information on clients whom they suspect might be U.S. taxpayers even if they claim not to be.
This requirement on foreign banks to report anyone who might be an American is backed by such stiff penalties that it is already making it hard for Americans who live and work abroad to open bank or brokerage accounts abroad. Foreign banks are hanging out signs saying "No Americans need apply." Even people with foreign spouses may have difficulty opening accounts in their countries of residence.
So why does the IRS need this additional "metadata?” It would be needed as a first step in gathering data on the assets of Americans, as would be needed if we ever had an annual wealth tax (as in France and Spain for example). (That would be a wealth tax in addition to the once-after-a-lifetime death tax already on the books!) Let us hope that the full Senate pays attention to this proposed enormous expansion of government financial intelligence gathering before it is too late.