Proposed legislation would require financial institutions to report data for accounts with annual activity of $ 600 – Finance and Banking

United States: Proposed legislation would require financial institutions to report account data with annual activity of $ 600

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In May 2021, as part of the American Families Plan, the Biden administration proposed that financial institutions report personal and business account activity exceeding $ 600 per year. Supporters of the legislation say it will provide the Internal Revenue Service (“IRS”) with additional information to facilitate audits, while the proposed legislation has raised compliance and confidentiality concerns from critics.

Proposed U.S. Family Plan legislation would require financial institutions to report transaction data for any consumer or business account with at least $ 600 in annual inflows or outflows. The US Department of the Treasury explained that the purpose of this proposal is to increase the visibility of gross revenue and expenditure, which would provide additional information to facilitate IRS audits. Specifically, supporters of this legislation argue that it would provide the IRS with the information it needs to effectively verify independent taxpayers who self-report their income. Additionally, proponents note that this proposed law would include not only traditional financial institutions but also payment settlement entities (for example, PayPay, Venmo, Square, etc.) and cryptocurrency exchanges and custodians that currently have few reporting requirements.

Financial institutions are currently required to report any deposit or withdrawal of $ 10,000 or more under the Financial Record Keeping and Reporting of Foreign Currency and Transactions Act 1970 (31 USC 5311 et seq.), Plus known as the Banking Secrecy Act (“BSA”). The purpose of the BSA is to require US financial institutions to keep proper records and file certain reports regarding currency transactions. Currency Transaction Reports (“CTR”) and Suspicious Activity Reports (“SAR”) are the primary means used by banks to meet BSA requirements. BSA regulations also include the requirement that a financial institution‘s records be sufficient to allow reconstruction of transactions and activities in customer accounts if necessary. In addition to BSA requirements, financial institutions also provide their clients and the IRS with Form 1099-INTs relating to all accounts that earn interest over $ 10 per year. Other than these reports, the IRS has little information on the activity of consumer and business accounts.

Many financial institutions and business groups have reacted negatively to the bill. The American Bankers Association, together with the bankers associations of the 50 states and Puerto Rico, submitted a letter to the US Senate Finance Committee in July 2021. In that letter, the various banking associations noted that the requirements of the legislation proposed are far from being larger and much more complicated than the few descriptive sentences suggest. In particular, critics argue that the proposed report would require significant resources to build, control and maintain. In addition, there are concerns that providing this new information to the IRS – which suffers 1.4 billion cyber attacks each year – could lead to additional data leaks that hurt taxpayers.

Although the legislation has not been finalized, this provision of the American Families Plan should be closely monitored by financial institutions to assess the evolution of their reporting requirements.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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