By Tom Ochsenschlager, CPA, J.D.
President Biden has proposed several federal revenue increases as a means to fund the proposed $1.8 trillion American Families Plan. Among these proposals is requiring financial institutions to provide the IRS with taxpayers’ account balances. The argument for this proposal is based on the IRS estimate that as much as 55% of business income is underreported or misreported.
Those supporting the proposal argue that, whereas most taxpayers’ income can be traced to forms such as W-2s and 1099s, underreporting of income for self-employed and small business taxpayers is difficult for the IRS to enforce. The Administration believes requiring financial institutions to report account balances would give the IRS the capability to identify circumstances where deposits or withdrawals do not coincide with amounts reported on a tax return and, accordingly, would significantly reduce the underreporting.