Community Banker or Tax Collector? Can the IRS tell the Difference?

There’s a bit of news that’s floating around out there that’s been getting quite a lot of interest (pun intended) from folks in banking, and their customers. If you’re a community banker, I’m sure you know what I’m talking about. It’s a provision of the proposed American Family Plan that seeks to shrink the tax gap by requiring banks to report on their customers’ withdrawals and deposits. I’ve been following the news with great interest and concluded that while the proponents of the proposal are seeking to address a legitimate problem, they’re going about it in entirely the wrong way.

Let’s start with some of the reasoning behind this proposal. The nonpartisan policy institute, the Center for American Progress (CAP), says that the United States will lose an estimated $7 trillion over the next decade from people and corporations who cheat on the taxes they owe and that the richest 1% percent of American taxpayers are responsible for an estimated $163 billion in unpaid taxes each year. Then, I came across this interesting article from CNBC, which provided some decent background on how this came about: “IRS chief tells Elizabeth Warren: More transparent bank data can fight tax evasion.” In it, IRS Commissioner Charles Rettig, states that “relying on banks to report basic information about their customers’ deposits and withdrawals could put a big dent in annual tax evasion” and believes that “more rigorous disclosures from the nation’s banks could help recoup billions in owed revenues.” 

Okay. While I agree that the federal government, and all of us, could benefit from the IRS successfully collecting taxes owed, relying on banks is not the solution. This is where the IRS and I — along with the banking industry, banking customers, and many elected officials — see things very differently.

This past May, a coalition of industry associations — including the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Credit Union National Association, Independent Community Bankers of America, National Association of Federally-Insured Credit Unions, and the National Bankers Association — made this argument to the U.S. Senate Committee on Finance: “The costs and other burdens imposed to collect and report account flow information would surpass the potential benefits from such a reporting scheme. New reporting would appear to require material development costs and process additions for financial institutions, as well as significant reconciliation and compliance burden on impacted taxpayers.”

As you are no doubt aware, the Independent Community Bankers of America (ICBA), has also jumped in with both feet. They’ve even launched a “Send a Letter to Biden”  campaign. “If community bankers weren’t busy enough continuing their heroic economic response to the pandemic, a recent proposal to impose new IRS reporting mandates on customer bank accounts has become a major advocacy priority.” The proposal, the site goes onto say, “is a threat to consumer privacy, will increase taxpayer complexity and confusion, channel more information into the IRS than it can process,” and more. 

GQ Magazine, in a piece entitled, “The IRS Admits It Doesn’t Audit the Rich Because It’s Too Hard,” actually summed up beautifully… and you needn’t even read beyond the article’s title.  But, reading the first paragraph is well worth your time:

“The Internal Revenue Service is in a bind. The agency's job is to collect the taxes that fund everything else in the government, from Social Security to the Post Office to Medicaid. But the IRS is struggling: Americans owe a cumulative $131 billion in unpaid taxes. The bulk of that money is owed by the wealthiest people in the country, yet the IRS isn't attempting to collect it from them. Instead, as IRS Commissioner Charles Rettig confirmed in a letter to Congress recently, the agency literally can't afford to audit the rich, so it's pursuing the poor instead.”

How, and why, did this happen?

Over the past few years, the chance of getting audited has grown slimmer and slimmer.

For most Americans, the chance of getting audited is less than 0.5 - 0.6%. For reasons pointed out by GQ, it’s those who make little that are most often the IRS’s audit targets. “This,” says GQ, “is because many of these taxpayers (those with incomes of $25,000 or less) claim the earned income tax credit and the IRS audits them to ensure that the credit is not being claimed fraudulently.”  What we’re seeing now is the lowest audit rate among high income individuals — those earning between $1 and $5 million annually — since 2004. What happened? With less funding and an increase in workload, the IRS simply isn’t equipped to do the job on its own.

Who can help? The banking industry!?

I agree with Forbes Magazine’s assessment in Under Biden Plan, The IRS Would Know A Lot More About Your Bank Accounts”:

“…the IRS will know about all of your bank accounts, whether you earned income on that account or not, how much is in the account in a given year, and how much was transferred in and out of the account. It is unclear how this would work, but what is clear is that this new reporting obligation will create a massive compliance effort on the part of financial institutions and eliminate a massive blind spot that the IRS is currently enduring.” This is both an invasion of privacy and an unnecessary burden on financial institutions.

The proposal is facing serious opposition not only from the banking industry and banking customers, but from state legislatures across the nation, as well. And rightfully so. In Maine for instance, according to Forbes, Representative John Andrews called the proposal “an unprecedented Federal intrusion into the financial lives of every day Americans.” As strongly worded and on-the-money (as it were) his statement is, Andrews only gets halfway to the finish line. Not only is this proposal an intrusion; it’s big-hand-of-government over-reach that the fed wants to fob off on community bankers who, as the ICBA pointed out, are “busy enough” doing what community bankers should do.

I’ve been working in the banking industry for decades now. I like it. I have no interest in working for the IRS.

About Bank Marketing Center

Here at BankMarketingCenter.com, our goal is to help you with that vital, topical, and compelling communication with customers; messaging that will help you build trust, relationships, and revenue. In short, build your brand. To view our campaigns, both print and digital, visit bankmarketingcenter.com. Or, you can contact me directly by phone at 678-528-6688 or email at nreynolds@bankmarketingcenter.com. As always, I would love to hear your thoughts on this subject.





The Wallet. Now on the Verge of Extinction.

I recently purchased season tickets for my beloved Auburn football games, and believe it or not, couldn’t quite figure out how to get my hands on them… the tickets, that is. Literally. My guess is that if you’ve tried to purchase tickets to a game or concert recently that you’ve probably had the same experience.

Gone are the days of a physical ticket, apparently.

The tickets were right there on my phone. I could see them, but was told -- by the ticket office -- that I could not print them out and present them at the gate, nor could I present a screen capture.  I was also told that I could only “transfer” the tickets once. The problem is that I have been buying tickets with a friend for 35 years. He received the digital tickets and then transferred them to me.

So now, how do I transfer them to my kids? How can I sell extras on the corner of Heisman Dr. and S. Donahue? What happens if my phone battery dies before I get to the gate? They didn’t consider that, I guess. We’re all struggling and fighting our way into this new digital age! I guess it’s time to start buying Apple stock again. And my friends with flip-phones need to go shopping.

It’s not like I haven’t been paying attention. I’ve been hearing and watching the news regarding digital wallets and the move to “all things digital.” And, like most people nowadays, I do use my phone to make deposits, make online purchases on Amazon, etc.  I guess, however, that it wasn’t until this recent experience that I was confronted with the true reality of what “digital wallet” means.

It does makes sense, doesn’t it? Why carry around two or three 6-month-old Home Depot receipts, three of four photos of your kids when they were toddlers (and are now out of college), that Total Wine loyalty card, your Silver Snickers membership card and the insurance cards, credit cards, and at one time in a bygone age your college football game tickets?  Especially when there’s a very good chance that you’re going to leave that wallet somewhere and never see it again.

Joanna Stern, author of the recent Wall Street Journal article, “Wallets are Over. Your Phone is your Everything Now”, made the point that wallets “are over” with a reference to this scene from Seinfeld; which I think pretty much says why this is the best thing that could ever happen to guys and wallets; George Costanza’s bulging, exploding wallet.

Of course, the whole “contactless” thing got a big boost during COVID, and really hastened the demise of wallets and the rise of the smartphone as its replacement; especially when it comes to banking services, such as making payments.  Remember the “checkbook?  I think that the only place you can see one now is in the Museum of Natural History. Thanks to the pandemic and, as Stern puts it, “our new collective fear of touching, well, anything, we’ve embraced contactless payments as an alternative to handing over plastic rectangles. In 2020, in-store mobile payments grew in the U.S. by 29%, according to research firm eMarketer, which predicts that more than half of smartphone users will pay with their phones by 2025.”

Hotel chains now let you bypass the lobby and go straight to your room, and a soon-to-be-released app from Apple will let you add hotel keys right to your Apple Wallet. The same goes for house keys and car keys, provided your home has a compatible smart lock and you drive a BMW. With the exception of just a few things, your keys, your personal info, your passwords, your credit card numbers and your Total Wine loyalty card are all stored in this one little device. What could possibly go wrong?

Well, instead of that wallet that gets left somewhere, what if it’s your phone that gets lost? Unlike your wallet, your phone “is a secure device, with all of the info encrypted and biometrically protected,” says Stern. Plus, as she points out, if you lose your phone you can remotely wipe it using Apple’s Find My Phone.  You can’t do that with a wallet, can you? Not yet. Maybe Find My Wallet is on its way. Along with Find that Matching Sock.

So these days, while I do much of my banking, buying, and football game attending using my phone, I still love carrying a wallet, including my 50 year old “electronic” key to the War Eagle Supper Club!  It feels good there in my back pocket. Maybe there’s something almost nostalgic about it, connecting me with a time that once was.

About Bank Marketing Center

Here at BankMarketingCenter.com, our goal is to help you with that vital, topical, and compelling communication with customers; messaging that will help you build trust, relationships, and revenue. In short, build your brand. To view our campaigns, both print and digital, visit bankmarketingcenter.com. Or, you can contact me directly by phone at 678-528-6688 or email at nreynolds@bankmarketingcenter.com. As always, I would love to hear your thoughts on this subject.