Skip to content
U.S. National Debt:

Crapo: Americans Should Loudly Reject Intrusive IRS Reporting Regime

Washington, D.C.--U.S. Senator Mike Crapo (R-Idaho), Ranking Member of the Senate Finance Committee, delivered remarks on the Senate Floor outlining concerns with the Internal Revenue Service (IRS) financial account reporting dragnet, and rumored changes.

Floor Speech 10.19.21

Excerpts:

“Under the guise of ‘closing the tax gap,’ Democrats have proposed to drastically expand the powers of the IRS and turn banks and credit unions into private investigators for law abiding Americans. We have been pointing this out to people across America for several weeks and the uproar is loud.”

“The IRS today--because of the pressure we’ve been putting on them--said ‘we already have data from everybody’s account from their paychecks, and we already have data on the interest they get on their various accounts, which has to be reported to us, and we already have data on federal benefits like the COVID payments that have been made to people. So we don’t need those data points collected in this new massive privacy violation, we can leave those out. But we need to have access to the other sources of income that people have.’”

“Now in that very same document, the IRS said they will not audit anybody who makes less than $400,000 a year. Well that wasn’t what the Green Book said--they didn’t say ‘we will change our proposal to forbid us from auditing anybody who makes less than $400,000 a year,’ all they said was, ‘take our word for it, we promise we will only audit rich, rich people who are billionaires.’ If that’s really the position they are taking, then why don’t they put it in a bill? Why don’t they put it in the proposal? Why don’t they put in the proposal that they cannot secretly or publically access the data of private individuals in their private accounts, if they make less than $400,000 per year? It would be really simple, wouldn’t it? But the IRS didn’t say that. The reason they didn’t say that is because that’s not what they intend to do.”

“Remember, they started out at $600. That tells you what they wanted. Now they said, well, we think we can get away with $10,000 because they know that still covers everybody. Think of a family that doesn't spend more than $10,000 in a year in their financial accounts. Think of a small business in America that doesn't run more than $10,000 a year of income and expense through their accounts. It will pick up every small business in America. It will pick up, I think, every family in America, and nothing will be changed. The IRS will have data on every American's account.”

“And then they say, ‘well, okay, but it's only two numbers. It's just the total of your income and the total of your outflow.’ Well, everybody intuitively understands what they will do with those two numbers--they will figure out which taxpayers to audit or which taxpayers they don't even need to audit, they will send them a notice of deficiency and say ‘we think you should owe more taxes and this is what we think you should owe us’ and if the taxpayers don't comply, then the IRS can audit them, and guess what happens when they audit them? They get access to every single transaction in their account.”

“Those today who have talked about [the proposal] said they have fixes, but as I see it, they don't really fix the proposal because it has fundamental flaws. The IRS does not need to have access to the accounts of every American who spends more than $10,000. Or every American who has income of over $10,000.”

This financial institution reporting proposal raises a number of serious concerns regarding Americans’ privacy; data security; and a massive amount of paperwork and confusion for taxpayers and the IRS.  In light of these proposals to massively expand the IRS with unprecedented amounts of mandatory funding, and the IRS’s continued abuses of taxpayer rights and privacy, Senator Crapo has introduced legislation to place important guardrails around and IRS funding to protect taxpayer rights and privacy, the Tax Gap Reform and IRS Enforcement Act

Watch Senator Crapo’s remarks here, or read them below:

Thank you Mr. President.

In the past few weeks, I have been working with my colleagues in the Senate to draw attention to the privacy concerns of requiring all financial institutions to report to the IRS on the inflows and outflows of every checking, loan and investment account above a certain threshold.

Under the guise of ‘closing the tax gap,’ Democrats have proposed to drastically expand the powers of the IRS and turn banks and credit unions into private investigators for law abiding Americans.

The proposal as it originally came out in the ‘Green Book’ from the White House required that every single financial account, not just bank accounts or credit union accounts, but all financial accounts that have more than $600 worth of inflow or $600 worth of outflow in an given year would have that reported to the IRS.

We have been pointing this out to people across America for several weeks and the uproar is loud. The message has been heard, obviously, because now the Administration and the IRS are saying, ‘Well, we didn’t really mean everybody who has a $600 inflow or outflow, we’re willing to raise that to $10,000, so that you don’t have to have the IRS snooping in your financial data in your financial accounts unless you have more than $10,000 in income or more than $10,000 worth of outflows in your account. We’re not going to count income, interest payments or government benefits in that.’

Let’s see what that really means--does that really reduce the scope of this spying on American’s financial accounts? This dragnet; letting the IRS have access to everybody’s account? How many people don’t have $10,000 worth of income or outflow in their account?

Let me give you a few data points, from the Bureau of Labor Statistics: The average taxpayer in America spends about $61,000 a year. What do they spend that on? The averages: housing, $20,000; transportation, $9,700; personal insurance and pensions, $7,296; health insurance, $4,968; groceries, $4,464; other meals, $3,459; entertainment, $3,226; other, $2,030; cash contributions, $1,888; apparel and services, $1,866; Education, $1,407; personal care, $768. For a grand total of the average American running $61,224 through their accounts in a year. So does raising the total to $10,000 really stop the IRS from access very many people’s accounts? No.

The IRS today--because of the pressure we’ve been putting on them--said ‘we already have data from everybody’s account from their paychecks, and we already have data on the interest they get on their various accounts, which has to be reported to us, and we already have data on federal benefits like the COVID payments that have been made to people. So we don’t need those data points collected in this new massive privacy violation, we can leave those out. But we need to have access to the other sources of income that people have.’

Now in that very same document, the IRS said they will not audit anybody who makes less than $400,000 a year. Well that wasn’t what the Green Book said--they didn’t say ‘we will change our proposal to forbid us from auditing anybody who makes less than $400,000 a year,’ all they said was, ‘take our word for it, we promise we will only audit rich, rich people who are billionaires.’ If that’s really the position they are taking, then why don’t they put it in a bill? Why don’t they put it in the proposal? Why don’t they put in the proposal that they cannot secretly or publically access the data of private individuals in their private accounts, if they make less than $400,000 per year? It would be really simple, wouldn’t it? But the IRS didn’t say that. The reason they didn’t say that is because that’s not what they intend to do.

Remember, they started out at $600. That tells you what they wanted. Now they said, well, we think we can get away with $10,000 because they know that still covers everybody. Think of a family that doesn't spend more than $10,000 in a year in their financial accounts. Think of a small business in America that doesn't run more than $10,000 a year of income and expense through their accounts. It will pick up every small business in America. It will pick up, I think, every family in America, and nothing will be changed. The IRS will have data on every American's account.

And then they say, ‘well, okay, but it's only two numbers. It's just the total of your income and the total of your outflow.’ Well, everybody intuitively understands what they will do with those two numbers--they will figure out which taxpayers to audit or which taxpayers they don't even need to audit, they will send them a notice of deficiency and say ‘we think you should owe more taxes and this is what we think you should owe us’ and if the taxpayers don't comply, then the IRS can audit them, and guess what happens when they audit them? They get access to every single transaction in their account.

I asked the IRS Commissioner whether this was actual data or just totals. And he said, ‘Well, we already have access to their transactional data if they want it.’ That's not a direct quote but that's the essence of what he said. It's true, if they want to audit you, they can get access to your bank accounts already. So the question is, who are they going to audit? Today, those who are trying to defend this say, ‘Well, we are only going to audit people who have $10,000 worth of inflow or outflow, and we will exclude wages which are already reported and we'll exclude benefits, which are already reported, and we'll exclude interest, which is already reported, and we won't account for anyone over $400,000.’

That's not true. They said they wouldn't audit those accounts? How will they make the money they are trying to make out of this proposal if they don't? Let's look at this in another perspective. We asked the Joint Committee on Taxation (JCT) to tell us what they think the distribution of audits and tax collections would be from Americans in all income brackets of this proposal. And the JCT said, ‘Well, you know, we can't tell you that because they haven't given enough detail on their proposal.’ So we can't tell you what their proposal is going to do because they haven't told us the detail of it. JCT said what they can do is look at the tax gap--which this is supposedly aimed at addressing--and we can tell you where that tax gap falls among the various income cohorts. So we asked them to do that.

They indicated that the tax gap falls mostly in less than accurate reporting on Schedule C and Schedule E. So they went through and looked at this. And so if you look at the JCT’s report and the tax gap that is available for the IRS to go get, here's what would happen: Forty percent to 57 percent of the tax gap collections would come from taxpayers making $50,000 or less. If you add in up to $100,000, 65 percent to 78 percent of those making less than $100,000 would be part of the tax gap that they would be going after. Seventy-eight percent to 90 percent from those making less than $200,000. And only 4 to 9 percent would come from those making $500,000 or more.

So if you want to know what the IRS wanted, you can look at this data on the tax gap. You can look at the data on where the tax gap lies, and you can look at their very first proposal that was as low as $600, and you can look at what the IRS was seeking to get.

Americans should be outraged that the IRS is seeking to make banks, credit unions, Venmo, PayPal, credit card companies, everyone who handles financial transactions, report to them. If you hit some level, whether it be $600 or $10,000 of either income or expenditure, then the door's open. Then the IRS can use its algorithm and decide whether to do a deeper dive on you and if they use the data from the internal revenue code or what has already gone on, 97 percent would come from people making $200,000 or less. Or, the IRS will have to forego that and collect on 4 to 5 percent, which is the people making over $500,000.

However you look at it, either they are going to collect billions and billions of dollars from people who make less than $400,000--and mostly less than $200,000 or $100,000--or they won't make the tax collections that they claim they are making. In this this big tax and spending spree they are trying to cram through Congress.

Let's look at it another way. Let's use a teacher as an example. So if you have a teacher, does Treasury envision gathering all the information on all of the teacher's Apple Pay and Venmo accounts, and expect financial institutions to cross check these transfers? And at which point must additional reporting be done? It's very important to point out here when I said earlier the White House and Treasury haven't really said what their plan is, it's because they don't want people to know what the real plan is. There is a telling sentence in the Green Book put out by the White House about this plan. It says that “broad powers will be given to the Treasury Department” to issue by rule and regulation the details of how they are going to utilize and access this data.

So if you have got a Treasury Department which has already proven it can't even keep the data it has safe and that its data will be hacked, you've got a Treasury Department that has already proven that it will not avoid utilizing the data it has for political purposes, that it will not avoid weaponizing the data it collects to punish or try diminish the influence of people with different political points of view, you’ve already got an IRS that has proven that it will take those kinds of actions and that it's available to be accessed for its private data to be hacked, what can Americans expect from that?

Again, those today who have talked about it said they have got fixes, but as I see it don't really fix the proposal because it has fundamental flaws. The IRS does not need to have access to the accounts of every American who spends more than $10,000. Or every American who has income of over $10,000.

Industry has already spoken up about these changes that were proposed today. The American Bankers Association says that ‘Even with the modifications announced today, this proposal goes too far by forcing financial institutions to share with the IRS private financial data from millions of customers not suspected of cheating on their taxes. The exclusion of payroll and federal program beneficiaries does not address millions of other taxpayers who will be impacted by this proposal. Not every nonwage worker is a millionaire. How about self-employed hair stylists, convenience store owners, and farmers, just to name a few? If enacted, this new proposal would still raise some of the same privacy concerns, increase tax preparation costs for individuals and small businesses, and create significant operational challenges, particularly for community banks.’

The list goes on. Mr. President, Americans must speak up loudly and say no. When asked if she was going to put this in the reconciliation bill, Nancy Pelosi said yes, yes, yes, yes. Americans should say no, no, no, no.

###