June 9, 2024

Prohibiting IRS Financial Surveillance Act would overturn proposed Biden rule for banks to report info on customer accounts above $600

GovTrack.us | by Jesse Rifkin | November 1, 2021

That could buy you 600 items from the McDonald’s dollar menu.

Sen. Tim Scott (R-SC)

Rep. Drew Ferguson (R-GA3)


To detect money laundering and other crimes, federal regulations mandate that banks report certain financial information to the government. For example, under the Bank Secrecy Act, banks must report cash transactions above $10,000. The rationale is that such thresholds are sufficiently high that they’re unlikely to ensnare middle-income or lower-income individuals or businesses.

But a new proposal from the Joe Biden Administration, with a far lower threshold than $10,000, has worried many. A proposed rule would require banks to provide the Internal Revenue Service (IRS) information about customer accounts with annual withdrawals or deposits above $600. More than 100 million household accounts and millions of business accounts would be affected.

Under the current version of the proposal, Individual transactions would not be tracked. Instead, the total amount of inflow and outflow would be reported annually, in an effort to combat tax avoidance at a time when the estimated “tax gap” between expected and collected revenue recently reached $1 trillion.

Unconvinced, many express fears that the government would indeed look at individual transactions after all — either at the policy’s inception, which the Treasury Department has pledged not to do if it’s enacted, or perhaps later on after the program is already established. Critics note the analogues with the mass surveillance state enacted after 9/11, which the federal government claimed only collected metadata like length of phone calls, but Edward Snowden’s 2013 disclosures revealed actually tracked considerable amounts of actual content.

In response to these concerns, the Washington Post recently reported that Senate Democrats are strongly considering a change that would raise the threshold from $600 to $10,000 — though as of this writing, that has not yet been formally introduced in legislation.

What the legislation does

The Prohibiting IRS Financial Surveillance Act would preemptively prohibit any federal agency — a phrasing clearly aimed at the IRS — from requiring financial institutions to report on their customers’ financial account information, including balances, transfers, and transactions.

The House version was introduced on October 15 as H.R. 5586, by Rep. Drew Ferguson (R-GA3). The Senate version was introduced a few days later on October 21 as S. 3056, by Sen. Tim Scott (R-SC).

What supporters say

Supporters argue that the proposed rules are an egregious example of the government spying on ordinary citizens.

“We should not allow the IRS to invade the privacy of Americans by snooping into their bank accounts,” Rep. Ferguson said in a press release. “The Biden Administration and congressional Democrats have clearly demonstrated their intent to instate a broad financial surveillance regime using Americans’ private financial information. In an attempt to chase down an ill-defined “tax gap” that may not even exist, Democrats are willing to throw caution to the wind, put secure information at risk, and further inflate the unchecked power of the IRS.”

“The Democrats’ plan to allow the IRS to spy on the bank accounts of nearly every person in this country, even those below the poverty line, should be deeply concerning to anyone who values privacy and economic inclusion,” Sen. Scott said in a separate press release. “Of the more than 7 million American households that are currently unbanked, the majority are low-income, rural, and minority Americans. Implementing the Biden reporting scheme will disproportionately harm those who need greater access to our financial institutions and people living paycheck to paycheck.”

What opponents say

Opponents counter that critics’ fears are overblown, that individual transactions would not be tracked, and that the proposal would help ameliorate or even eliminate the $1 trillion tax gap.

The reporting threshold is set as low as $600 because “We want to make sure that individuals can’t game the system by opening multiple accounts in order to evade the [rules],” Treasury Secretary Janet Yellen said in a September House Financial Services Committee hearing.

Yellen also argued that it actually wouldn’t be a dramatic expansion of government powers relative to the status quo. Right now, much of the audit time of the IRS is [already] devoted to taxpayers that have relatively low incomes,” she said elsewhere at the same hearing. “We know that the tax gap is something that comes from opaque sources of income and from high-income individuals. The audit rates on individuals earning less than $400,000 would not increase.”

Odds of passage

The House version has attracted 171 cosponsors, all Republicans — a substantial majority of the chamber’s 212 Republicans. It awaits a potential vote in the House Financial Services Committee.

The Senate version has attracted 49 cosponsors, all Republicans — which, along with its Republican lead sponsor, means every single Senate Republican has signed on. It awaits a potential vote in the Senate Banking, Housing, and Urban Affairs Committee.

Odds of passage are low in the Democratic-controlled Congress.

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