President Joe Biden and Congressional Democrats have proposed giving the IRS $80 billion in new funding over the next decade, enough to hire 87,000 new agents and double the agency’s size. This will embolden the IRS to harass, audit, and target taxpayers and will be used to implement and enforce a new regulatory regime to have the agency collect information on the withdrawals and deposits for millions of bank, loan, and investment accounts as well as Venmo, CashApp, and PayPal accounts.
President Biden’s budget proposed tracking any account exceeding gross inflows and outflows of $600. More recently, Senate Democrats have suggested a threshold of $10,000 and have said they would exempt wage income.
Even so, there are many reasons taxpayers should be concerned about this proposal.
First, while supporters of this new regime say the proposal is about making sure “the rich” pay their “fair share,” Americans earning less than $400,000 per year will inevitably be impacted. A $10,000 threshold is little more than $200 in total inflows or outflows per week or $800 per month, amounts that many Americans could easily hit.
Nothing stops this new reporting from impacting middle-class Americans, especially the millions of independent contractors that do not have wage income. Moreover, the exemptions Democrats have said they will add will likely make the final proposal more convoluted and complex and do not guarantee that the IRS will not target taxpayers.
Second, the reporting could easily be expanded by a future Democrat Congress. It would give the IRS vast new information about taxpayers — currently, the IRS largely tracks income-based information, including wages, dividend payments, and interest. But this proposal would have the agency track information related to deposits and withdrawals — dramatically expanding the information IRS bureaucrats collect.
In fact, earlier this year, Democrat lawmakers snuck a provision into the $1.9 trillion COVID-19 reconciliation bill that lowered the threshold at which independent contractors have to report 1099-K income from $20,000 in total transactions to just $600.
Third, the IRS has shown it will abuse existing reporting requirements to target taxpayers. According to a 2017 report by the Treasury Inspector General for Tax Administration (TIGTA), the IRS Criminal Investigation Division (IRS-CI) regularly violated taxpayers’ rights and skirted or ignored due process requirements when investigating taxpayers for allegedly violating existing $10,000 currency transaction reporting requirements which exist under the Bank Secrecy Act.
TIGTA found that most of these investigations were fishing expeditions – just 8 percent of taxpayers investigated were found to have broken the law.
Instead, the inspector general uncovered numerous examples of IRS overreach, including violations of the Eighth Amendment and failure to provide the taxpayer of their basic rights, including considering reasonable explanations given by investigated taxpayers, providing the purpose of the interview, proper agent identification, and that a seizure of their property took place.
Given these violations, it is not hard to see how the IRS uses the new bank reporting regime to target and harass taxpayers.
Fourth, the agency can’t be trusted to safeguard taxpayer data.
In June of this year, the progressive group ProPublica announced it had received the stolen private tax returns of thousands of taxpayers covering 15 years. Since this announcement, ProPublica has released multiple articles claiming to have detailed taxpayer information of specific individuals. If this information is accurate, its disclosure is illegal. However, the IRS and Treasury department claim to not know how this tax information was obtained.
While this is concerning, it is the only case where the IRS has failed to protect taxpayer data. For instance, a 2016 TIGTA report found that the IRS had lost track of 1,000 laptops containing sensitive taxpayer data that contract employees used. Similarly, in 2015, hackers stole the personal data of 330,000 taxpayers. Reports indicated that the hackers didn’t use suspected tactics but instead managed to steal data by going through the website and pretending to be regular people filing their taxes.
Lastly, could the IRS even properly use the vast amounts of data collected by the proposal?
As it stands, the agency struggles to complete basic tasks. For instance, each year, the IRS hangs up on millions of callers — a practice they refer to as “Courtesy Disconnects.” Currently, if you call the IRS, you have a 1-in-50 chance of reaching a human being.
A report on the 2021 filing season found that almost 40 percent of printers were not working at tax processing centers in Ogden, Utah and Kansas City, Missouri. However, in many cases, the only thing wrong with the printers is that no employee had replaced the ink or emptied the waste cartridge container.
The agency has also repeatedly failed to compile legally required tax complexity reports. These reports are supposed to contain the IRS’s specific recommendations on making the tax code easier to comply with. Since 1998, the IRS has done so just twice – in 2000 and 2002.
While the left claims the new financial reporting requirements will only fall on “the rich,” middle-class taxpayers should be alarmed with this proposal to give the IRS new power. The agency routinely fails to complete basic tasks or protect taxpayer data and has a record of abusing existing reporting requirements to target and harass taxpayers.
• Alex Hendrie is Director of Tax Policy at Americans for Tax Reform.